A key story coming out overnights is that Europeans politicians as well as policymakers are considering revisiting the July 22 agreement between Greece and private bondholders. At the time private sector involvement in the second bailout for Greece included target for bondholders to assume write-downs of around 21% of their bond holdings. However this figure seems to be too little now in the eyes of Germany and at least 6 other Euro-zone nations which would like to see a larger contribution to Greece's second bailout package coming from the private sector.

That original 21% write-down would amount to around €50 billion of though €159 billion 2nd Greek bailout.

The comments came from Luxembourg Prime Minister Jean-Claude Junker, who was chairing a meeting of euro zone finance ministers. We heard whispers of this is the G 20 summit, in which a plan to boost support measures in euro zone including expanding the lending capacity of the EFSF via leveraging would be done only if Germany's demands of larger private bondholder participation was met.

However the problem of course is that the arrangement was already struck, and reopening the agreed-upon conditions will create uncertainty and turmoil in periphery bond markets as it sets a template that could be used for writedowns of other troubled periphery countries' debt.

European leaders are not speaking with one voice, as certain countries do not want to see deeper writedowns, as that would create further market turmoil and renegotiating these terms can hurt the credibility of European leaders.

Greek Aid Decision Pushed Off Past October 13th

Another European use we have the decision on whether Greece will get its next evening euro long installment delayed past October 13th, meaning that it will likely be decided as part of the October 17-18 summit of European government leaders. That gives us another week and a half of speculation over whether Greece will be able to meet its requirements according to the EU and IMF specters. We've seen the Greek Cabinet already agreed to an extra €6.69 of cuts, and perhaps more may be forthcoming before that next installment of aid is disbursed.

Impact on EUR

These latest developments didn't have a major impact on the euro as it managed to move sideways against the dollar and yen. Still, today's action is simply a pause in the declines seen in the euro to end last week and to begin this week. The euro actually gained against other higher yielders such as the Pound and Australian dollar overnight.

the market will now focus on the European Central Bank decision which will come on Thursday, as well as continue to keep its focus on any headlines coming from European politicians in regards to what happens next with Greece as well as I Europeans build their defenses against contagion from a possible managed Greek default.

Nick Nasad
Chief Market Analyst