by On the FT Alphaville blog, Mark Weidemaier and Mitu Gulati argue that re-denomination risk in the Euro zone is most prominent in France and Italy. Bonds with CACs trade at higher prices. Most French and Italian [but not Greek] debt is governed by local law. … the governments could pass legislation redenominating their bonds from euros to francs or lira. … [But] some French and Italian bonds — bonds issued after January 1, 2013, with maturities over a year — have Collective Action Clauses (CACs). … Importantly, these CACs require a super-majority of investors (in principal amount) to approve any changes to the currency of the bond. … But it’s also possible a local law bond is no different than a local law bond with a CAC. After all, both are ultimately subject to the whims of the local legislature, and the courts may side with them. The markets seem to have a view, though: CAC bonds in the countries with heightened redenomination risk seem to be valued significantly more.
Topics:
Dirk Niepelt considers the following as important: Collective action clause, Euro, France, Italy, Notes, Redenomination, Sovereign Debt, Sovereign risk
This could be interesting, too:
Dirk Niepelt writes “Report by the Parliamentary Investigation Committee on the Conduct of the Authorities in the Context of the Emergency Takeover of Credit Suisse”
Marc Chandler writes US-China Exchange Export Restrictions, Yuan is Sold to New Lows for the Year, while the Greenback Extends Waller’s Inspired Losses
Marc Chandler writes Trump’s Tariff Talks Wobble Forex Market, Close Neighbors Suffer Most
Marc Chandler writes Ueda Lifts Yen, Leaving Euro and Sterling Pinned Near Lows
On the FT Alphaville blog, Mark Weidemaier and Mitu Gulati argue that re-denomination risk in the Euro zone is most prominent in France and Italy. Bonds with CACs trade at higher prices.
Most French and Italian [but not Greek] debt is governed by local law. … the governments could pass legislation redenominating their bonds from euros to francs or lira.
… [But] some French and Italian bonds — bonds issued after January 1, 2013, with maturities over a year — have Collective Action Clauses (CACs). … Importantly, these CACs require a super-majority of investors (in principal amount) to approve any changes to the currency of the bond.
… But it’s also possible a local law bond is no different than a local law bond with a CAC. After all, both are ultimately subject to the whims of the local legislature, and the courts may side with them.
The markets seem to have a view, though: CAC bonds in the countries with heightened redenomination risk seem to be valued significantly more.