FXStreet (Edinburgh) – Strategist Rich Kelly at TD Securities assessed the implications for the ELA mechanism after the Greek referendum on Sunday.
Key Quotes
“On the back of a ‘No’ vote, we would expect the market reaction to be about twice as intense as what we saw on Monday, but with a more protracted inability for the market to completely move on”.
“The biggest question mark will be the ELA. As long as the two sides remain in discussions, we think the ELA remains in place, even though we think the creditors will be unwilling to come to any agreement with Syriza”.
“We would, however, expect the ECB to increase its haircuts on ELA collateral shortly thereafter to help offset some of the further risks to its balance sheet, though not enough to cap out any individual bank”.
“Defaulting on the samurai bond could trigger a credit event with ISDA after July 14”.
“Defaulting on bonds held by the ECB on the 20th would not trigger a credit event, but we could see the ELA terminated at that point”.
“But even if the ECB chose to follow their self-imposed rules and end the ELA, they would also likely counter that with additional frontloaded QE over the next few months and announce additional liquidity tenders in order to quell market volatility for the rest of the Eurozone”.
“Exposures to Greece in Bulgaria, Romania, and Turkey may be the first to come under the microscope both of markets—and policymakers in those countries—as well”.
(Market News Provided by FXstreet)