Wall Street Journal
February 21, 2012
A bond swap completed last week aimed at protecting the European Central Bank from a restructuring of Greek government debt was widely seen as unsettling euro-zone sovereign-bond markets. So far, though, it hasn't.
Last week, the ECB swapped the estimated €45 billion to €50 billion ($59.2 billion to $65.7 billion) face value of bonds—bought in the open market in 2010 and 2011 in a vain effort to quell bond-market turmoil—for bonds of the same face value. The new bonds—unlike the old—won't be subject to any forced restructuring like those held by private bondholders.
The risk, analysts said, was that private bond investors would conclude that bonds bought by the ECB will always rank senior to theirs in future restructurings, requiring them to accept deeper losses so a government can cut its debts to manageable levels.
"There is a potentially dangerous precedent being set here," said Nicholas Spiro of Spiro Sovereign Strategy in London. However, prices of other euro-zone government bonds have hardly reacted, indicating "that a Greek restructuring is now perceived as a one-off," he said.
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