How To Trade The Spanish Bank Bailout In One Paragraph

Tyler Durden's picture

We explained it all in painful detail in January. We refreshed two weeks ago ("The Spanish 'Legal-Arbitrage' Bond Trade Is On") and then one week prior ("Spanish "Litigation Arb" Trade Is The New Killing It"). Now, finally, Citi's Matt King has jumped on board.

From: Stealth subordination

International bonds with negative pledges and tough Collective Action Clauses should trade at a premium to domestic bonds. While we think it is unlikely that their clauses are triggered, the protection they offer is significant – in Greece, some got paid out in full, while unprotected bonds were strong-armed into the PSI. With awareness of the risks likely to increase, we think this premium is underpriced in the market.

We obviously agree. And a bonus paragraph:

Poorly thought out ESM planning increases the chance of an accidental or early Spanish CDS credit event trigger. As sovereign CDS trades ‘old-R’, 30-year bonds are deliverable to any maturity CDS in a restructuring credit event. This has the effect of pushing down potential recovery rates. The combination should make the CDS-cash basis more positive than it would have been otherwise. That said, the basis is extremely positive already, and seems more likely to be influenced by the same pattern as in Greece, Ireland and Portugal, where an initially positive basis turned negative once bondholder selling overwhelmed CDS protection buying.


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idea_hamster's picture

Poorly tought out ESM planning

Come on, folks -- enough with the repetitively redundant repetition!

Zero Govt's picture

what ESM planning???

the ink wasn't dry on the last 2 ECB Stress Tests and they were completely redundent (instant rubbish)

the Bank of England has just ripped up its latest economics forecasts only 6 weeks after making them (at least the ink was dry before going into the bin!)

Bernanke at the Fed had 80 years of data on the 1930's Great Depression and still came to all the wrong conclusions on how to deal with it ....if it ever happened again ...which he didnt see coming ...and isn't the same type of Depresssion so requires different policy tools anyway!!!

Central bankers/planners mis-read the past, don't see anything coming, can't predict the future and when it/reality smacks them in the nose, like Mervyn 'clueless' King at the BoE, have no idea how to "return to normality"

don't let £500bn worth of nappies and dipers thrown at British Bankers and still failing not to shit the cot phase you Merv ...and the nanny State wonders why bankers can't get out of dipers!!!

the clueless leading the clueless

proLiberty's picture

But approved by the EU's Department of Redundancy Department.

veyron's picture

Tyler, once again prescient

LawsofPhysics's picture

"CDS event trigger".  Nearly fell out of the chair.  Riiiiggght.  All paper is junk, period.  Especially once guys like this catch on and start talking about what has been so clearly articulated already by the tylers of the world.

Sudden Debt's picture

Is this something that makes sence?

because if yes, I'll pass...


disabledvet's picture

"quants." one of them told the SEC about Bernie Madoff ten years prior to him blowing up a bunch of European Banks. Needless to say "the FBI visited him" and not the banks that were being blown up.

Manthong's picture

CDS Event Trigger... like the ones for Greece?

Nothing To See Here's picture

Exactly. But hey, even though Greece and now Spain will not have been CDS triggers, and even though any trigger event would collapse the system thus eliminating any chance of a trigger in the future, any trader will tell you that CDS are worth buying - because you have to be part of the herd after all...

gjp's picture

How to trade Spanish bailout?  Just buy AMZN at 100x PE and grocery store Whole Foods at 40x.  Why bother dealing with arcane law and policy risk?  Americans will still consume on their credit cards even as the rest of the world reckons with economic reality.  And who cares what the valuation of these companies is?  They are great American companies, no price is too high.  The ultimate safe havens.  Look at them up 1-2% today while the barbarous relic keeps going down.


JohnG's picture

Has the ISDA suddenly become relevant?

disabledvet's picture

And of course our Fed Chairman called it "Quantitative EASING." hmmmmm. What's the opposite of that I wonder...

RaymondKHessel's picture

"More than any time in history mankind faces a crossroads. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray that we have the wisdom to choose correctly."
-- Woody Allen

Nothing To See Here's picture

This is not the hope you are looking for...

KandiRaverHipster's picture

Sell, Mortimer, Sell!