By Ambrose Evans-Pritchard
05-Mar (The Telegraph) — The Spanish rebellion has begun, sooner and more dramatically than I expected.

As many readers will already have seen, Premier Mariano Rajoy has refused point blank to comply with the austerity demands of the European Commission and the European Council (hijacked by Merkozy).

Taking what he called a “sovereign decision”, he simply announced that he intends to ignore the EU deficit target of 4.4pc of GDP for this year, setting his own target of 5.8pc instead (down from 8.5pc in 2011).

In the twenty years or so that I have been following EU affairs closely, I cannot remember such a bold and open act of defiance by any state. Usually such matters are fudged. Countries stretch the line, but do not actually cross it.

[source]

PG View: Rajoy will undoubtedly gain popular support within Spain (and perhaps elsewhere in the periphery) for thumbing his nose at EU austerity demands. Nonetheless, things are going to remain crumby in Spain even under Rajoy’s more lenient 5.8% debt/GDP target, although arguably things would be much worse under the EU’s 4.4% target. I wonder if Rajoy has gone so far as to consider who then might fund Spain’s larger deficit moving forward…and at what price.

03-Mar (NY Times) — That was the message delivered last Thursday to Americans who today make almost nothing on the savings in their bank accounts.

It came from Sarah Bloom Raskin, an insider at the Federal Reserve. Ms. Raskin, one of the governors on the Fed board, made the usual disclaimer that her comments reflected her own thinking. But Fed watchers said her remarks probably mirrored views inside the central bank.

The issue — as anyone looking for income-producing investments knows — is that the Fed drove down interest rates to almost zero to shore up big banks and an economy that those banks helped drive off a cliff. Now savers, who did nothing to create the financial crisis, are being punished.

This is one of the more troubling paradoxes of the Fed’s rescue of the financial system. And, according to Ms. Raskin, it is likely to continue for some time.

[source]

PG View: One can mitigate the punishment the Fed is doling out by choosing to save in gold.

04-Mar (MarketWatch) — Gold futures retreated Monday, extending a selloff started in the previous session and following weekly losses of 3.7% for the metal.

Gold for April delivery declined $5.80, or 0.4%, to trade at $1,703.90 an ounce on the Comex division of the New York Mercantile Exchange.

“Following last Wednesday’s sharp price slide, gold has not yet been able to resume its upwards trajectory,” analysts at Commerzbank said in a note to clients.

“There is additional scope for correction” as managers who had flocked to gold earlier leave the trade, but the correction is likely to be temporary, they added.

[source]

04-Mar (Bloomberg) — Greece expects bondholders to accept a one-time offer to write off about 100 billion euros ($140 billion) of Greek debt and is ready to force them to participate if necessary, Finance Minister Evangelos Venizelos said.

“This is the best offer,” Venizelos said in a Bloomberg Television interview with Nicole Itano in Athens today. “This is the best offer because this is the only one, the only existing offer.”

…“If we can avoid the triggering of CDSs this is the best solution,” said Venizelos. “With a near universal participation it’s not necessary to activate CACs. But this clause exists in our legal order and we are ready to implement the legislation if necessary.”

[source]

04-Mar (USAGOLD) — Gold slipped back toward the low end of last week’s range, after China’s revised its 2012 growth forecast to 7.5%. In recent history China has targeted 8.0% growth, although has with great regularity overshot that projection.

Additional uncertainty surrounds Thursday’s looming deadline for private Greek bond holders to “volunteer” for the proposed debt swap. Greece needs about 95% participation in the swap, or they will likely implement collective action clauses (CACs) that will shatter the charade that the is a voluntary deal and therefore not a default. The bond holders seem to be coming to the realization that Greece has no better chance of paying off on the new bonds than they do on the old bonds. If the bond holders have insurance in the form of credit default swaps (CDSs) they might have a better chance of recovering some of their losses by that avenue, but of course that may also trigger the next Lehman-esque systemic event.

The euro caught a little bid in earlier trading, prompting a modest retreat in the dollar. However, the short-term tone in the single currency remains defensive after last week’s gains faltered ahead of 1.3500.

US nonfarm payrolls for Feb comes out on Friday. While the market is eager to see some confirmation of the strong number from January, the Gallop employment survey from Feb raised some concerns. Nonetheless, the median forecast is running around +210k jobs, which would leave the jobless rate unchanged at 8.3%.

• US ISM- NMI rose to 57.3 in Feb, above market expectations of 56.5, vs 56.8 Jan.
• US factory orders -1.0% in Jan, above market expectations of -1.5%, vs upward revised +1.4% in Dec; inventories +0.6%.
• Switzerland retail sales +4.4% y/y in Jan, vs big upward revised +1.7% in Dec from +0.6% previously.
• Eurozone Markit PMI – Composite lower at 49.3 in Feb, vs 49.7 advance print.
• UK CIPS Services PMI falls to 53.8 in Feb, below market expectations of 55.0, vs 56.0 in Jan.
• Eurozone retail sales +0.3% in Jan, above market expectations of -0.1%, vs negative revised -0.5% in Dec; 0.0% y/y.
• Russia CPI 3.7% y/y in Feb.
• South Korea FX Reserves rise to $315.8 bln in Feb, vs $311.3 bln in Jan.
• Taiwan FX Reserves rise to $394 bln in Feb, vs $390.3 bln in Jan.
• Taiwan CPI tumbles to 0.25% y/y in Feb, vs 2.4% y/y in Jan.
• Singapore PMI improves to 50.4 in Feb, vs 48.7 in Jan.

04-Mar (The Wall Street Journal) — Some very large banks are clashing with the Federal Reserve over how much detail the central bank will reveal about them when it releases the results of its latest stress test.

The 19 biggest U.S. banks in January submitted reams of data in response to regulators’ questions, outlining how they would perform in a severe downturn. Now, citing competitive concerns, bankers are pressing the Fed to limit its release of information—expected as early as next week—to what was published after the first test of big banks in 2009.

…This time around, the Fed has pledged to release a wider array of information, including annual revenue and net income under a so-called stress scenario in which the economy would contract and unemployment would rise sharply.

[source]

05-Mar (BBC) — China expects economic growth of 7.5% this year as it looks for more sustainable expansion, prepares for a change in leadership and rides out a global slowdown.

Premier Wen Jiabao unveiled the target at the start of the annual National People’s Congress.

Despite setting a target of 8% growth over the past eight years, China has regularly grown more quickly.

This has caused problems including high inflation and a widening wealth gap.

Last year, China’s gross domestic product (GDP), or annual economic output, grew by 9.2%. In 2010 gross domestic product grew 10.4%.

[source]

PG View: Weaker growth prospects in China are weighing on gold today.

02-Mar (Bloomberg) — China expanded a trial of yuan settlement for exports to all companies qualified for foreign trade from a list of designated participants, the nation’s central bank said on its website yesterday.

The change is aimed at promoting trade and the Chinese currency’s cross-border use, the People’s Bank of China said, citing a combined directive with the ministries of finance and commerce, the customs and taxation bureaus and the China Banking Regulatory Commission.

[source]

Gold Remains Up Nearly 12% This Year, Despite Wednesday’s Plunge

02-Mar (USAGOLD) — Gold is displaying a more defensive tone this morning, amid persistent concerns about Greece. The euro has tested back below 1.3200, and the corresponding rise in the dollar is weighing on the yellow metal. Additionally, the market continues to speculate about exactly what happened on Wednesday to prompt an intraday plunge in gold greater than $100. Without a clear answer, buyers may be tentative until there are some technical assurances that a base is in place.

There is a growing realization that the latest Greek bailout deal, which presumably is still inching its way toward an actual payment of some sort to Greece, is nothing more than another attempt to buy some additional time. Recent data — most notably Feb PMI, which plunged to a series low 37.7 — makes it increasingly difficult to believe that Greece has any chance of making good on the new bonds that they will swap for the old bonds. With the PSI deal still hanging in the balance, this is surely an inconvenient truth.

It was reported yesterday that the ISDA had deemed that the Greek debt swap is somehow not a credit event, and therefore will not trigger Greek credit default swaps. That delusion becomes very difficult to defend if Greece starts enforcing collective action clauses (CACS). At that point, the alleged “voluntary” debt swap is pretty obviously coercive, especially with Greek bonds on the ECB balance sheet already getting more favorable treatment. Yet I somehow wouldn’t be surprised if the ISDA miraculously finds that implementation of CACS is not a credit event either; so that the writers of the CDSs don’t have to pay and governments and/or central banks don’t have to then come in and bailout those counterparties.

This CDS fiasco is just another illustration of the dubious nature of paper instruments.

Meanwhile investors continue to reflect on who might have been the big seller of paper gold on Wednesday. The latest speculation comes from Dennis Gartman of the Gartman Letter, one not predisposed to suggestions of market manipulation. An apparently trusted and well-placed source told Mr. Gartman that an undisclosed seller dumped the equivalent of 3 million ounces of gold at the London PM fix on Wednesday with the explicit instruction that it all be done within a few minutes. Gartman’s source believes “it was indeed official selling.”

Initially rumors suggested someone sold 1 million ounces worth of futures contracts, but whether we’re talking 31 tonnes, or 93 tonnes, what really changed hands on Wednesday was nothing more than a few grams of paper — or perhaps more accurately a bunch of “1s” and “0s” between computers. As one of my friends in Switzerland pointed out, there aren’t many counterparties on the planet that could come up with 31 tonnes of actual physical gold…and be willing to part with it.

In my opinion, whatever the volume of selling truly was, the market absorbed it pretty well and gold remains up nearly 12% since the beginning of the year. And based on the Wednesday’s PM fix at 1770.00, gold even managed to eke out a 1.49% gain in Feb.

02-Mar (Gartman Letter via GATA) — Moving on to the gold market, we remain bullish of gold in yen terms, and having made that statement yet again, we note something wholly out of the ordinary on our part: the prospects that something manipulative and perhaps even nefarious took place Wednesday in the gold market.

The market’s plunge may not have been solely the result of pure market forces, but may have been the result of a very real effort to “manipulate” the market lower … perhaps on orders of a central bank hoping to break the market in order to buy gold more cheaply after the surge of selling, or perhaps on the order of a government wishing to drive gold down for the “optics” of weaker gold prices.

…[A] note we received yesterday from a very longstanding friend and client of The Gartman Letter caught us off when it raised the very real possibility that something untoward took place Wednesday morning. Our friend, whom we’ve known for years and is not given to such speculation but who is at the center of such events, wrote:

“Dear Dennis, hope you are well. Regarding yesterday’s action in the precious metals, I have a different take on this than you do. As I have very intimate details of yesterday, I think it was indeed official selling. At the London fixing, an order came in to sell 3 million ounces of gold and it was explicitly ordered to be done in just a few minutes. No investor or speculator would 1) handle it this way and 2) do it at the fixing only.

“This [has] happened this way three times in the last year, yesterday being the fourth time. Ben Bernanke had done nothing yesterday to trigger this the way it happened. I [have done] this now for 30 years and this was no free market yesterday. We will find out one day.”

We offer this explanation as it stands, but certainly it has our interest piqued. It may be idle speculation on our friend’s part. It may even be wrong. But certainly it is interesting and worthy of some consideration. We shall leave it at that and we wish not to comment any further … to the press, to clients, or to anyone else; nor shall we.

[source]

PG View: Speculation about what happened on Wednesday persists, but if the market really did absorb 3 million ounces in paper sales as Gartman’s source suggests — rather than the originally rumored 1 million ounces — I think it actually has held up remarkably well.

The European Union leaders who have been meeting in Brussels since last night are due to finalize the terms of the second Greek bailout today, though there are signs that the process may yet drag on for another week. It’s easy to get lost in the details, abbreviations and acronyms that have surrounded the package since negotiations began last summer. But make no mistake, this remains a terrible deal for both Greece itself and European taxpayers, and it has laid a major political and economic time-bomb that could explode in a few years’ time.

Of the €282.2 billion marked for the various measures now on the table to save the stricken country—including EU bailouts and interventions by the European Central Bank—only €159.5 billion, or 57%, will actually go to Greece itself. The rest will go to banks and other bondholders to cushion the blow of “private-sector involvement,” or private creditors’ losses on their Greek holdings.

This would have been acceptable if not for one nagging detail: The plan won’t actually save Greece.

[source]

02-Mar (Bloomberg) — Holders of credit-default swaps on Greek bonds shouldn’t tear up their contracts after yesterday’s ruling against a payout.

The International Swaps & Derivatives Association said the swaps hadn’t been triggered by the European Central Bank’s exchange of Greek bonds for new securities exempt from losses taken by private investors. The group will now probably be asked to determine whether collective action clauses, or CACS, being used by Greece to impel investors to participate in a wider exchange of bonds that would trigger the swaps.

“They will have to enforce CACS,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “At that point the exchange will become coercive and that will be a restructuring event for CDS.”

[source]

By TIM GEITHNER
01-Mar (The Wall Street Journal) — Four years ago, on an evening in March 2008, I received a call from the CEO of Bear Stearns informing me that they planned to file for bankruptcy in the morning.

Bear Stearns was the smallest of the major Wall Street institutions, but it was deeply entwined in financial markets and had the perfect mix of vulnerabilities. It took on too much risk. It relied on billions of dollars of risky short-term financing. And it held thousands of derivative contracts with thousands of companies.

These weaknesses made Bear Stearns the most important initial casualty in what would become the worst financial crisis since the Great Depression. But as we saw in the summer and fall of 2008, these weaknesses were not unique to that firm.

…Remember the crisis when you hear complaints about financial reform—complaints about limits on risk-taking or requirements for transparency and disclosure. Remember the crisis when you read about the hundreds of millions of dollars now being spent on lobbyists trying to weaken or repeal financial reform. Remember the crisis when you recall the dozens of editorials and columns against reform published on the opinion pages of this newspaper over the past three years.

…We cannot afford to forget the lessons of the crisis and the damage it caused to millions of Americans. Amnesia is what causes financial crises. These reforms are worth fighting to preserve.

[source]

PG View: What Mr. Geithner fails to address in his op-ed is that the actions of his Treasury Department, the Fed and Congress make this “amnesia” possible. They essentially rewarded bad behavior, allowing ‘too big to fail’ banks to quickly return to ‘business as usual’, chasing yield further out on the risk curve. In fact, the collapse in Treasury yields pretty much forced them out along the curve. Hey, but that process has now pushed the Dow back above 13,000, so it’s all good…right?

01-Mar (ZeroHedge) — SNB +230%; Fed +222%, BOJ +125%, BOE +87%, PBOC +93%, ECB +51%.

PG View: Pretty strong evidence that the rally in bonds — and perhaps by extension the rally in stocks — is nothing but a charade.

Kind of surprised to see the Fed is not #1.

01-Mar (Bloomberg) — Greece will probably default this year on European governments’ holdings of its sovereign debt, according to Jacob Kirkegaard of the Peterson Institute for International Economics.

The country published the formal offer last week for its agreement to exchange bonds for new securities, with private- sector investors taking a loss of 53.5 percent. While the European Central Bank won’t take direct losses from the swap agreement, the writedown may make it more politically feasible for governments to lose money on Greek debt, Kirkegaard said.

…“If I were a buyer of industrialized sovereign credit- default swaps, I would strongly begin to doubt that I would ever get a payout,” he said.

[source]

29-Feb (GoldAlerts) — Commenting on the sell-off, CIBC World Markets wrote in a note to clients that “Gold – looks like a large seller of gold in the market. a 10k contract traded, down ticked the price by $40/oz. roughly 200k contracts trade per day, but unusual to see such a large single trade. not likely due to contract expiry either. That transaction represents 1mln oz of gold.”

[source]

PG View: The above is an alert from yesterday that quotes CIBC World Markets (the investment banking subsidiary of the Canadian Imperial Bank of Commerce) as having witnessed the rumored large sale of paper gold on COMEX.

01-Mar (The Wall Street Journal) — —Fresh U.S. Treasury data suggest that China has lost its taste for investing as much of its $3.2 trillion in foreign-exchange reserves in U.S. dollars and may be increasing its holding of euro-denominated securities during a time that a debt crisis has roiled European markets.

Economists have long warned that if China started to cut back its purchases of U.S. securities, U.S. interest rates could climb, damaging the U.S. economy. China’s diversification of its vast reserves, however, hasn’t caused disruption so far, partly because of strong global demand for U.S. securities as a safe haven during troubled times.

…But the data, which provide one of the very few clues about how China invests its reserves, suggest that the percentage of dollar holdings in China’s foreign-exchange reserves has fallen to a decade-low of 54% from 65% in 2010. Purchases of U.S. securities equaled just 15% of the increase in China’s foreign-exchange reserves in the 12 months, down from 45% in 2010 and an average of 63% over the past five years, according to calculations based on information published by the U.S. Treasury and the Chinese government.

[source]

PG View: Further confirmation of an already well established trend.

The article goes on to say: Where did the money not invested in dollars go? China’s SAFE won’t say.

I think we all know where a pretty sizable chunk of FX reserves not invested in dollars is going…

MarketWatch (Mar 1) by Steve Beck — “Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.

“Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?”

Anyone for pile A? No, I didn’t think so. It’s as though Buffett, in one fell swoop, reduced the gold investor to a blustery, slightly deranged Yukon Cornelius wandering the financial markets with a metaphorical pickaxe in hand, singing an off-key melody of “Silver and Gold.”

But before you shamefully squirrel away your private gold stash into some spider hole, let’s take a closer look at Buffett’s argument and determine if there is in fact a case for gold as a portfolio tool.

It’s bold to call Buffett ignorant, but according to the rules of logic and their Latin parlance, in this instance he may be. His argument is ignoratio elenchi — an ignorant conclusion, or put simply, he’s missing the point. According to logic, because X is true, it does not necessarily follow that Y is false.

Buffett suggests that because someone would not exchange pile B (the best of productive, corporate America) for pile A (a massive cube of all the world’s gold), then gold should not be in your portfolio. You don’t have to be an investment sage to know that you shouldn’t take all your cash to buy a pile of metal. (Although, to be slightly playful with this point, if you owned all the gold in the world, you would quickly become the world’s gold market-maker — and market makers generally do quite well in driving up an asset’s value.)

In the end, a modest exposure to gold can help you create a diversified hedge that protects your portfolio from both the U.S. debt burden and the vagaries of the world economy.

[Source]

JK Comment: YES!! This ‘argument’ by Warren Buffett receives a great deal of attention, too much perhaps. It seems that literally every critic (and there are plenty in the mainstream financial press) of gold ownership inevitably references Buffett when discounting the role of gold diversification. Last year, Wells Fargo Wealth Advisory made a point of using it when they dubbed gold a bubble. I’ve long waited for an analyst who isn’t directly involved in the gold market to point out the nonsense in Buffett’s argument. Here it is. My compliments, and thanks, to the author, Steve Beck.

01-Mar (SeekingAlpha) — On Wednesday, February 29, gold plunged 5.0% and silver plunged 5.7% presumably because traders had incorrectly bet that Ben Bernanke would use the occasion of his semi-annual Congressional testimony to either announce or telegraph a third round of quantitative easing (QE3).

…It is likely not a coincidence that the last time big traders crowded into the gold trade, it also preceded a large drop in gold and silver.

…Given the size of the sell-offs, I have to assume that the traders who were betting on QE3 or otherwise over-leveraged for short-term bets are washing out of these trades. These weak hands can cause a lot of noise when they all try to exit the same trade at the same time. Once this washout exhausts itself, both gold and silver will offer the intrepid trader and investor the next big buying opportunity in these precious metals.

[source]

01-Mar (USAGOLD) — Gold moved off Wednesday’s low, bolstered by overseas bargain hunters, but the market remains on uncertain footing in the wake of yesterday’s sharp sell-off. We’ve seen this kind of activity before though, and historically such drops have proven to be buying opportunities.

I’ve heard quite a few explanations for Wednesday’s precipitous drop: Month-end position squaring. Smash-down on ‘first notice’ day for Mar silver. Rumors of a very large sell order from an Asian name. Beneficiaries of the ECB’s €529.5 bln LTRO quickly seeking to turn their euros into dollars. Heightened expectations that the latest LTRO was the last. Bernanke playing coy about the likelihood of additional QE. The BoE’s Martin Weale saying there may not be a case for further stimulus.

Truth be told, it was likely a culmination of all (or some) of the above. A bit of a perfect storm, which created a cascading affect as stop-loss orders were triggered on the way down.

Interestingly, the sell-off came on a day when the ECB pumped an additional massive amount of liquidity into the European banking system. At €529.5 bln, the LTRO was in-line with expectations, although there was a point several weeks ago when expectations were running closer to €1 trillion. Perhaps the market was disappointed in the size. There were also reports that at least some of the 800 banks that participated in the LTRO were swapping their fresh horde of euros for dollars. Add to all that increased speculation that the ECB is done with such operations and markets that are clearly addicted to central bank liquidity fixes can quickly start ‘jonesing’.

Similarly, in testimony before House Financial Services Committee, Fed chairman Bernanke suggested that the current policy stance was “conditional.” The implication being that improvements in the economy might warrant a scaling-back of Fed accommodations. Nonetheless, Mr. Bernanke characterized the recovery as “uneven and modest,” suggesting tighter policy was not imminent.

Some seemed to be thinking that Bernanke was likely to telegraph QE3 in his testimony, which will be repeated before the Senate today. With Operation Twist ongoing through June and some recent improvements on the employment front, I didn’t think anything overt was likely. With gasoline prices on the rise and making headlines, it in fact seemed quite unlikely that Bernanke would say anything that might further spur energy prices.

The bottom line is that the fundamentals for the gold market have not changed. While the short to near term technical picture was dealt a blow, the medium term range defined by the 1920.50 all-time high from August and the December low at 1522.40 remains intact, as does the long-term uptrend. Initially here, I’m watching the halfway back point of yesterday’s sell-off at 1739.63.

• US personal income +0.3% in Jan, below market expectations of +0.4%; PCE +0.2%, on expectations of +0.4%.
• US initial jobless claims -2k to 351k in week ended 25-Feb, below expectations of 355k, vs upward revised 353k in previous week.
• Eurozone unemployment rate rose to 10.7% in Jan, above market expectations of 10.4%, vs upward revised 10.6% in Dec.
• French unemployment rate ticks higher to 9.8% in Q4.
• Switzerland Q4 GDP (sa) +0.1% q/q, above market expectations of -0.1%, vs upward revised +0.3% in Q3; 1.3% y/y.
• Eurozone Markit PMI – manufacturing in-line and steady for Feb at 49.0.
• Switzerland SVME Manufacturing PMI improved to 49.0 in Feb, but missed expectations of 49.5, vs 47.3 in Jan.
• Eurozone CPI – Flash Estimate 2.7% y/y in Feb, above market expectations of 2.6%, vs 2.6% in Jan.
• China CFLP PMI – Manufacturing edges higher to 51.0 in Feb, vs 50.5 in Jan.
• China HSBC/Markit PMI – Manufacturing improves to 49.6 in Feb, vs 48.8 in Jan.
• Thailand CPI 3.35% y/y in Feb, vs 3.4% in Jan.
• Indonesia CPI 3.56% y/y in Feb, vs 3.65% in Jan.
• India Trade Balance-CC -$14.8 bln in Jan, vs -$12.7 bln in Dec.

01-Mar (GoldCore) — There was blood in the gold and silver trading pits yesterday as leveraged longs got their heads handed to them on a plate.

The massacre was attributed to a host of different reasons – from month end book squaring, to the positive PMI numbers to Bernanke’s suggestion that ultra loose monetary policies may soon come to an end.

None of these reasons would justify the scale of the massive sell offs seen in gold and silver yesterday.

…Respected analysts such as legendary Jim Sinclair, John Embry and Jean-Marie Eveillard suggested that the sell off was due to manipulation by bullion banks.

[source]

01-Mar (NY Times) — The International Swaps and Derivatives Association said on Thursday that based on current evidence the Greek bailout would not prompt payments on the credit default swaps.

But the organization warned that the situation in Greece was “still evolving” and such payouts might be necessary in the future “as further facts come to light.”

In the midst of the Greek drama, credit-default swaps, financial instruments intended to protect against losses on debt, have been a point of concern.

As part of restructuring, bondholders will be required to take a 70 percent loss on their holdings. The deal was structured as a voluntary exchange, which would not have triggered the credit-default swaps.

[source]

PG View: This comes as no surprise as the ISDA was rightfully worried that the writers of such swaps wouldn’t be able to pay anyway; which likely would have required further bailouts for global financial institutions. The take-away though, is that CDSs on sovereigns aren’t worth the paper they’re printed on…