ISDA, Which Refuses To Declare Greece In Default, Has Given The US A 3 Day Grace Period Before A CDS Trigger

Tyler Durden's picture

ISDA is rapidly deteriorating to rating agency status when it comes to credibility. After it made it all too clear in the past few weeks that no matter what happens it would never "determine" Greece (or any other European insolvent country) to have breached a CDS trigger (as that would apparently destroy the world), the same trade association (logically enough comprised of the same firms that make up the heart of the status quo) has joined the rating agencies, and as of last night the CME, in making it all too clear that a debt ceiling plan (preferably Reid's because it achieves absolutely nothing) has to pass, or else, after it earlier announced that the US has precisely 3 days to cure any missed debt payment before US CDS are triggered. Obviously this can not be allowed to happen, so expect this latest development to be used by the president in his nighlty scaremongering session.

From Reuters:

The United States would have at least 3 days to make up for any missed debt payments before it triggered payments on its credit default swaps, according to trade association the International Swaps and Derivatives Association.


There has been some confusion over whether the United States would trigger an estimated $4.77 billion in payments on its CDS if it skips a bond payment as it runs up against an Aug. 2 deadline when the Treasury has warned it will run out of cash.


The Treasury would have at least 3 days to cure any default, under CDS document rules, Steven Kennedy, global head of communications at the association in New York, said on Tuesday.


"This grace period would apply if there was no grace period or if the grace period was less than three business days under the terms of the reference entity obligation," he said.

Zero Hedge will update today's weekly DTCC data on gross and net CDS notional when it is released around 8 pm tonight.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Cognitive Dissonance's picture

If you step over this line, then you're gonna get it.

OK, well if you step over this line, then you're really gonna get it good.

OK, now I really mean it. If you step over that line way over there, then you really really honest to God are gonna get it....maybe. And I really mean it this time. Really. I do. Kinda.

Ahmeexnal's picture

make no mistake
debt will be paid
no gold left
no hard assets left
payment will be made with sheeple slaves

Mr Lennon Hendrix's picture

This is a good point.  The "slaves" or "taxpayers", what have you, will be fleeced with some totally sacrificed for the "greater good" of society.  Then at the last minute, when no layman has anything, they will say, "Oh, and to save the system, gold is worth X######.  Too bad none of you have any!"

Reptil's picture

I read this today, somewhere. It's from a guy who studies Mayan calenders and all that jazz. That is inconsequential; It just shows more are catching on to the reality of wealth and how it's determined, and that they are NOT in control:

These numbers in the bank computers (Obviously the same applies to stocks, funds etc) define the power structures of our societies and determine almost all human relationships, what we as a species do and focus on in our life on earth.

With such a monetary system it seems obvious that unity consciousness cannot exist in a real sense, simply because those that have high numbers in the bank computers dominate and decide what the others are to do, and how they are to spend their time, and such dominance is inconsistent with oneness. CJ

The "gold is money" thing is still not on the radar though. Very, very bullish. :-)

Cathartes Aura's picture

nice quote Reptil, pointing to the absurdity of allowing "high numbers" decide the worth of anyThing, anyOne. . .

I'd just add that studying the Mayan Calendar, or any other means of "measurement" is not so inconsequential really, merely another tool of consciousness that can be used towards the realisation of unity, which can only be realised by One relative to All - if One views any system of "measurement" with a view to the Whole, and ceases to dwell on the Parts - and lining them up in a competitive point-of-view which further separates the Unity - then really, Unity exists in anyThing. . . just remove the competitive, measuring "I" . . .

but yes, absurd that pixelated numbers have such power.

Popo's picture

At some point the credit markets themselves will lose faith in the validity of the ratings.

And then the real shit show begins...

hedgeless_horseman's picture

I wonder if the shit show (AA USA-dollar < 72) is the main attraction, or just the warm-up act?

Ghordius's picture

The credit market are already totally detached from the CDS "Universe".

And any serious CDS "triggering" would destroy the financial world.

What I find strange is that ZH and all commentators feel that the CDS set-up is "legitimate" "as-it-is". Wake up! Have you seen what the amount of notionals are?

The situation of the credit market is difficult enough without having a Mutual Assured Destruction device planted in the TBTF banks.

CDS are either insurance or reckless gambling. For both there are time-tested methods. As-it-is, it's idiocy.

Of course, if you really only wish for the "End of the World", then cheer on. ;-)

Cathartes Aura's picture

I like how your post ties in with Reptil's above, Ghordius - pointing to the futility of trying to include "the CDS set-up as legitimate" - it cannot be, it's a fiction, as is the fiat wealth it measures. . .

it's all a mind-game, and the "End of the World" is another hollow version, energy merely changes form, it never ends.

So keep on playing those mind games together
Faith in the future, outta the now
You just can't beat on those mind guerrillas
Absolute elsewhere in the stones of your mind
Yeah we're playing those mind games forever
Projecting our images in space and in time

JuicedGamma's picture

You mean they'd actually have to start doing their own due diligence.  If they haven't already learnt that there's no hope for 'em.

TruthInSunshine's picture

I was reading something (forgot what now) that stated Geithner has revised his "must raise" date 5 times since December of last year.

But August 2 fo' real, yo.

I genuinely hope that we either default (the resultant surge in interest rates would certainly impose a new era of austerity born of necessity) or government cut spending in ways it considered radical prior to this event (if we took a poll, would most Americans NOT want to see a 10% or 15% cut of the federal budget, rather than a debt ceiling raise?).

Some people accuse me and some others who think like I do of "just wanting to see the world burn down."

In Truth, I only want to see another seemingly hopeless debt junky enter recovery and succeed.

Kill the Federal Reserve, end Too-Big-To-Fail, f*ck Wall Street.

It's time to live within our means and force Wall Street and Banks to either sink or swim on their own merit.

Cognitive Dissonance's picture

I hear you and I truly do understand what you are saying. But regarding your sincere desire.......

In Truth, I only want to see another seemingly hopeless debt junky enter recovery and succeed. actually already pointed out who the real debt junkies are.

(if we took a poll, would most Americans NOT want to see a 10% or 15% cut of the federal budget, rather than a debt ceiling raise?).

Just like all addicts, they we refuse to see their our own addiction. We are both the enablers and the addicted.

TruthInSunshine's picture

At a minimum, the Federal Reserve has transferred 3 trillion dollars to banks and Wall Street entities over the last 29 months, either directly or indirectly, but with transfer payments (in whatever form, and no matter what or how they were labeled) taken directly from taxpayers. Some would claim that this tally is significantly higher, actually.

And this doesn't even account for how much savers, being paid artificially depressed yields on thinks like CDs, MMs and T-Notes, have been dinged for in the form of interest denied.

So, while I agree that Americans don't want to give up entitlements, necessarily, I also think this debt ceiling raise was necessitated in large part by the monetary policy of the Federal Reserve/Bernank.

How much money has The Bernank stolen from responsible savers?

Cognitive Dissonance's picture

All excellent point TIS.

At this point we are being held hostage. Americans are now to the point where our own self interest (staying clothed, housed and fed) is being used against us by expert blackmailers to extort the last drop of remaining wealth from 'we the people' before we are allowed to be free and broke.

Just in time for a new world order.

Silver Dreamer's picture

Unfortunately, As what happened with the Roman Empire, we are generations into the warfare and welfare propaganda.  People are accustomed to them now, and they see those ever deepening black holes of debt as normal.  Government welfare is their unalienable right, and warfare is patriotic, not corporate welfare.  In other words, we are screwed. 

TruthInSunshine's picture

Good points, SD.

Multinational corporations, banks and other 'financial' entities owe no national allegiance to any country (ask General Electric, that bastion of American Patriotism and the best accounting firm in the world [I don't blame them for wanting to maximize tax savings, but that's not to say they aren't the archetype that will cause extraction of juice from individuals and small businesses to rise dramatically, in order to finance government recklessness, as they're figuring out how to not contribute, and they get preferential tax treatment vs Joe Q. Public]).

The problem with the planning of the globalists, at least in this context, and against the backdrop of what the TRUE elites want, is that "even the best of plans go awry," as their are way too many variables and unforseen consequences in complex environs.

One such example is that small business really and truly does drive a majority of job creation and wages paid in the U.S., and as the multinationals pay less and less into U.S. government coffers, government will inevitably come for two pounds of flesh from small businesses, which, at this point, is a recipe for collapse (of any hopes for a job recovery, economic expansion of any degree that's sustainable or significant, and hope for rising living standards or better operating conditions for small and mid-size, domestic businesses and entrepreneurs).

I'd imagine/assume that a similar dynamic would/is play/playing out in other nations, also.

TumblingDice's picture

And now that the tide has crossed the super duper final line, it is time to destroy the sand castle manually.

Hugh Jorgan's picture

Steven Kennedy and company are on my list of those who need to be tarred and feathered immediately.

The fact these obamabots are weilding this type of threat, all the while looking the other way, when euro-trash

nanny-states are completely insolvent is beyond the pale, and must be dealt with, at the very least, by putting

the leadership in stocks in the town square, where all passers by can shame and shun them. 

Ghordius's picture

Hey, doughboy? What's your problem? <euro-trash nanny-state>?? Insolvent? In which currency? Because we don't want the Bernank Solution?

Do you have a clue how many regulations we have to implement here because they are standard in the US?

Do you have an idea how the non-us world laughs about things like "Danger: this microwave is not to be used to dry live animals" which have to be stick everywhere, courtesy of US-Courts awarding millions to morons? Do you have an idea how the PC work rules are creeping out of your country?

Define better what a nanny-state is and do some research beforehand...

TheTmfreak's picture

Anything and everything will be used to believe in the "supports" of these systems. They're too big to fail after all.

Mr Lennon Hendrix's picture

Fear the reaper, bitchez!

glenlloyd's picture

Wow...they're starting to drag out the WMD heavy artillery now. I expect the flailing arms and panic screams to commence momentarily.

HungrySeagull's picture

The old German super rail guns of WW2 took a crew of 1500 + Logistical support and was only able to lob a shell every 50 minutes or so somewhere in the general direction of the enemy.


Regarding the threats of a three day line, I say they are cowards.

Call the default or get off the road and stay on the porch.

bill1102inf's picture

Yeah, about that, there is 0 chance the US defaults even if the debt limit is not raised.

101 years and counting's picture

would love to listen to barry trying to explain how it is the evil CDS traders that would bring armageddon on the US...


Cole Younger's picture

Talk about extorting the sovereign legislation process. Hmmmm, it might be time for RICO...The way I see it, Congress and the administration are being black mailed into spending and raising the debt ceiling.

StychoKiller's picture

Blackmailed?  More like bribed for their Kabuki performances to the Ignorati!

No Bid's picture

At this point I'm not even sure if CDS action could move equities.


Robots took over at 10:09amET.  Unreal.

RobotTrader's picture

Wake me up when the 10-yr. yield passes 5%.  We are still at 2.96%

When the S & P 500 topped out in January 2000, the 10-yr. yield was 7%!!

Only about 400 bp to go.......

Mr Lennon Hendrix's picture

Wake me up when Bernanke sacrifces his career to keep interest rates low.  Oh wait.....

swissinv's picture

the long end of the curve is likely to bounce up... (no the short-end though) 

swissinv's picture

the long end of the curve is likely to bounce up... (no the short-end though) 

Internet Tough Guy's picture

Momo, you are the perfect fade. Oil is green. Did you say this an hour ago? LOL...

Tue, 07/26/2011 - 10:29 | RobotTrader (Total Score:1)
Vote up!

2 Vote down!


Things are going to get better because crude oil folded like a cheap suit again today.

Obama mistakenly let crude out of the SPR and gave the proles a tax cut!  LOL....


Dr. Engali's picture

Yeah that ended pretty well didn't it?

Clowns on Acid's picture

Why can't they just cut Gov't spending? Why is there even a discussion? Y'all know the answer...left wing facsists need other people's money to tell them how to live their lives and get paid for the enforced "advice".

Da na na na na - get ready, get ready.....

Mr Lennon Hendrix's picture

I wish it was that simple, but the right wing facists want to cut SSTF, Medicare, Medicade, food stamps, and other programs that poor and elderly people rely on....oh wait, the left wing facists want to cut those programs too. 

So we give up on the system.  We fire ALL of the politicians (we could if we wanted to) and we take our rights back. 

Quintus's picture

Genuine question - Is there even a significant exposure here?  How many people took out default insurance on the US?  Until a very short while ago, the very idea was considered insane, so I can't imagine there was a big market for such insurance, but I may be totally wrong.

uranian's picture
$1 Billion Armageddon Trade Placed Against The United States


July 25th, 2011 - Someone dropped a bomb on the bond market Thursday – a $1 billion Armageddon trade betting the United States will lose its AAA credit rating. 

In one moment, an invisible trader placed a single trade that moved the most liquid debt market in the world.

The massive trade wasn’t placed in bonds themselves; it was placed in the futures market.

The trade was for block trades of 5,370 10-year Treasury futures executed at 124-03 and 3,100 Treasury bond futures executed at 125-01.

The value of the trade was about $850 million dollars. In simple terms, if that was a direct bond buy, no one would be talking about it.

However, with the use of futures, you have to have margin capacity behind the trade. That means with a single push of a button someone was willing to commit more than $1 billion of real capital to this trade with expectations of a 10-to-1 return ratio.

The number of shops or even central banks that can take on this level of market risk is extremely small. Some that come to mind are hedge fund manager John Paulson, Bill Gross’s PIMCO, and the U.S. and Chinese central banks.


Quintus's picture

That's a Futures trade though, rather than a CDS related position.   I guess whoever took the other side of the trade may try to cover themselves with CDS insurance, but to my original point, this trade was only put on last Thursday because the idea of US default was inconceivable just a couple of months ago.  It wouldn't surprise me to learn that there is a larger net CDS exposure tied to Greece than the US.

Island_Dweller's picture

s there even a significant exposure here?  How many people took out default insurance on the US?


Uh, everyone who bought PMs.......

Cthonic's picture

That's pretty rich coming from a systemically inane institution like the ISDA.

PulauHantu29's picture

"...conscious choice is an illusion...leading some people to ponder whether there is such a thing as free will."

Brooke Gladstonein, "The Influencing Machine"

buzzsaw99's picture

Whomever is buying CDS protection must be dumb as fuck because it ain't never gonna pay off.