Currencies Drive Stock 'Roller-Coaster'

Another roller-coaster day for the stock market, again getting smacked around by currency issues. The euro weakened midmorning on a strange witche's brew of news coming from Europe:

1) lots of traders passing around the WSJ article on potential new Spanish hidden debts that a new government might uncover. Remember when the new party came into Greece and uncovered the same thing?

2) Fitch downgraded Greece's credit rating, noting that if Greece extended the maturity of existing bonds it would be considered a default. S&P had already said that.

3) An ECB official said the ECB may not accept Greek sovereign debt as collateral if the bond maturities are extended. (Track Sovereign Debt CDSs Here.)

4) Norway is suspending a grant to Greece for assistance on security and the environment. It was only a $42 million grant, and the story was out yesterday, but many traders had not seen it until it was repeated today. Even though it doesn't appear to have anything to do with the bailout...failing to live up to the terms of even a small agreement has traders in Europe nervous.

One question I have been repeatedly asked by traders: if they extend the maturities on Greek bonds, is that a default for the purpose of having credit default swaps kick in?

My guess is that any change in terms and schedules is a default under the contracts, but then again an extension would not involve a hit to principal. No matter: I would bet that ultimately this is something that the International Swaps and Derivative Association (ISDA) would rule on.

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