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So Greece may have got what it wanted: a 95.7% participation rate in its debt swap deal  - complete with the activation of Collective Action Clauses or CACs, according to Greek officials, which should mean that it is on its way to reaching a 120% debt-to-GDP target by 2020, but will that actually happen?

Athens and co. may have pulled off the biggest debt re-structuring in history but this is unlikely to be the end of the saga. Firstly, this debt swap still has some lose ends. Later this afternoon we will hear whether credit-default-swaps on Greek debt have been triggered. The chances are that since CACs have been applied they indeed will have been triggered and right now the 5-year Greek CDS is priced at 26,000, this compares with 613 for Ireland and 396 for Spain. So the markets aren't treating all of peripheral Europe as they treat Greece, which should come as a relief for EU authorities.

But what does a CDS trigger actually mean? Rough estimates suggest that there is $3billion of insurance written on Greek debt, this compares with about $5.7 billion for Lehman Brothers. That means that some banks somewhere owe some investors somewhere $3 billion, no small chunk of change. Details are patchy as CDS's are traded off exchange, but if the swap is triggered it doesn't mean that those private sector investors who have just seen the value of their Greek bond holdings get slashed by more than 50% will receive the insurance pay-out. This is because a CDS isn't really insurance and you can buy it even if you don't own the underlying... A bit like someone else owning insurance on your home and receiving the pay-out even if your home burns down...

And that's not the only lose end. Firstly, we need to hear from the Greek finance minister later this morning, also a Eurozone finance ministers conference call is scheduled for 1400GMT. Added to this, we have heard that EUR 155 billion of Greek-law bonds have been tendered for the debt swap, this equates to 85.8% of the total, which means that holders with EUR 25bn of Greek-law bonds are holding out and refusing to sign the deal, which will likely mean CAC's are involved and thus CDS's are triggered. But those holders of the EUR25 billion won't be happy about this and expect Argentinian -style litigation to last for many years to come.

Added to this, the debt swap is all about getting Greek debt down to sustainable levels, which is far from certain and there may need to be further bailouts/ debt swap deals down the line. No fiscal data for Greece is yet available for 2012, however, the EU/ IMF growth forecasts for Athens are considered optimistic even though they are forecasting  another 4% contraction in the economy this year. This comes after a larger than expected 7.5% contraction in the economy in Q4 2011, announced earlier this morning.

So even though Greece has already implemented an extra EUR3 billion of austerity cuts earlier this year, more cuts will need to come possibly after the April general election. Only if more austerity and weak growth fail to push the debt levels lower will larger debt write-downs be considered, in our view.

Right now the markets are mostly concentrating on Greece. In the lead up to the debt swap risk was on, but what is now becoming typical, risk is now off as we get the details of the deal. EURUSD is at the lows of the day, just above 1.3210. 1.3180 is a key support zone that is now in focus. If we break below here then 1.30 is vulnerable opening up the way to the 1.26 lows from the start of the year.

The dollar is in recovery mode and is strong across the board, although the dollar index may find 79.50 a short-term resistance level as we wait for payrolls later today. The markets are looking for a big number, 210K according to Bloomberg, and for the unemployment rate to remain at 8.3%. This number is possibly more important than what is going on in Greece (everyone knows that Athens still has plenty of problems even if it has got over the 20th March bond redemption hurdle).

The Fed might be looking at new forms of QE including buying long term debt and sucking in short-term deposits to limit the inflationary impact, however another month of good employment numbers could make the market re-assess the prospect of further easing in the world's largest economy. This is bad news for Treasuries - a good number could see 2-year yields break convincingly out of their recent range above 0.32%. But good news for USDJPY bulls, since the cross is closely correlated to Treasuries. 82.00 is the next major level to watch, above here opens the way to 85.00 highs from April 2011.

While more QE may not be on the cards for the US, China and the UK may have more room to loosen policy according to the latest economic data from these countries. In China, CPI for February came in at a 3.2% annual rate, down from 4.5% a year ago. However, the Jan/ Feb combined inflation rate (that tries to strip out the impact of the Lunar New Year holiday) is about 3.9%, so although Beijing has some room to loosen monetary policy further it hasn't won the war on inflation yet. Even so, any rumours of a further RRR cut could boost risk especially the Aussie dollar.

In the UK, industrial and manufacturing production figures were fairly weak at the start of the year. This is concerning since the UK economy contracted in the last quarter of 2011 and if the economic data continues to deteriorate then we may see more QE from the BOE down the line, which should be pound negative in the medium-term.

Best Regards,

Kathleen Brooks| Research Director UK EMEA |

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