Today's Headlines

Bloomberg:

• ECB Greek Plan May Hurt Bondholders While Triggering Debt Swaps. The European Central Bank’s plan to shield its Greek bond holdings from a restructuring may hurt private investors while paving the way for debt insurance contracts to be triggered. The ECB will exchange its Greek debt for new bonds with an identical structure and nominal value, though they’ll be exempt from so-called collective action clauses the government is reportedly planning. That implies senior status for the ECB over other investors, according to UBS AG, and the use of CACs may lead to credit-default swaps protecting $3.2 billion of Greek bonds being tripped. “It may appear that the ECB is receiving preferential treatment, raising questions about whether the ECB is senior to private-sector bondholders,” according to Chris Walker, a foreign exchange strategist at UBS, the world’s third-biggest currency trader. “If a coercive default does indeed eventually take place then a CDS event seems very likely with all the negative consequences for risk appetite that may bring.” Government officials are separately negotiating a writedown of the nation’s debts with private investors before a 14.5 billion-euro ($19 billion) note comes due on March 20 that risks sending Greece into default. The yield on the nation’s benchmark 10-year bond jumped 28 basis points today to 33.67 percent as of 1:30 p.m. in London, its sixth straight day of increases.
• Greek Bailout Deal Nearer After Germany Signals Backing at Feb. 20 Meeting. Euro-area governments closed in on a deal to unlock a 130 billion-euro ($171 billion) aid package for Greece, seeking to avert the region’s first sovereign default. Germany, the biggest country contributor to euro-area rescues, signaled that finance ministers may be ready to back Greece’s second bailout in two years when they meet Feb. 20 in Brussels. After a week of wrangling among euro-area officials, Chancellor Angela Merkel’s government indicated it aims to avoid splitting the timetable of the aid and a writedown of Greek debt to private bondholders and agree to the deal as one package. Greece’s struggle to give assurances on debt-reduction goals through the end of the decade have heightened uncertainty as the clock ticks toward a March 20 bond redemption when Greece must pay 14.5 billion euros or trigger the first sovereign default in the euro’s 13-year history. The Brussels gathering on Feb. 20 is due to start at 3:30 p.m. instead of the usual 5 p.m.
• Merkel Government Allies May Block Greece Package, Spiegel Says. Chancellor Angela Merkel’s Christian Social Union ally may block a second aid package for Greece in Germany’s lower house of parliament on Feb. 27 should Greece fail to honor its debt reduction commitments, party chairman Horst Seehofer told Spiegel magazine. The CSU, the sister party of Merkel’s Christian Democratic Union, won’t support measures that threaten Germany’s top credit rating, Seehofer also said. Any aid disbursement to Greece must be accompanied by “concrete reform steps” on the part of the Greek government, Seehofer told the magazine.
• Stress Stops Easing With Greek Debt Faltering: Credit Markets. Measures of stress in global credit markets have stopped easing as a rescue plan for Greece threatens to unravel and some of the largest U.S. and European banks face potential ratings cuts. Interest-rate swap spreads, which gauge fear in debt markets, and benchmark measures of corporate credit risk in the U.S. and Europe touched the highest level in more than two weeks yesterday. Sales of bonds in dollars are poised for the slowest week this year. Relative yields on bank bonds worldwide climbed for a second day after an eight-week decline.
• Record $6 Trillion of Fake U.S. Bonds Seized. Italian anti-mafia prosecutors said they seized a record $6 trillion of allegedly fake U.S. Treasury bonds, an amount that’s almost half of the U.S.’s public debt. The bonds were found hidden in makeshift compartments of three safety deposit boxes in Zurich, the prosecutors from the southern city of Potenza said in an e-mailed statement. The Italian authorities arrested eight people in connection with the probe, dubbed “Operation Vulcanica,” the prosecutors said. The U.S. embassy in Rome has examined the securities dated 1934, which had a nominal value of $1 billion apiece, they said in the statement. “Thanks to Italian authorities for the seizure of fictitious bonds for $6 trillion,” the embassy said in a message on Twitter. The financial fraud uncovered by the Italian prosecutors in Potenza includes two checks issued through HSBC Holdings Plc (HSBA) in London for 205,000 pounds ($325,000), checks that weren’t backed by available funds, the prosecutors said. As part of the probe, fake bonds for $2 billion were also seized in Rome. The individuals involved were planning to buy plutonium from Nigerian sources, according to phone conversations monitored by the police. The fraud posed “severe threats” to international financial stability, the prosecutors said in the statement. HSBC spokesman Patrick Humphris in London declined to comment when contacted by telephone.
• Chinese Banks' Bad Loans Rise in Fourth Quarter as Economy Slows. Chinese commercial banks’ bad loans increased in the fourth quarter of last year, highlighting pressures the lenders face in maintaining asset quality as the economy slows. Non-performing loans rose 20.1 billion yuan ($3.2 billion) to 427.9 billion yuan as of Dec. 31, the China Banking Regulatory Commission said in a report on its website today. Bad loans accounted for 0.96 percent of total lending, up from 0.95 percent in September and 0.17 percentage point lower than a year earlier. Chinese banks are struggling to keep bad loans in check as the country’s economic expansion slows and the housing market cools under government curbs. Lenders’ non-performing loan ratio had not increased quarter-on-quarter since the end of 2005, according to data compiled by Bloomberg. “This is somewhat negative news because investors are not yet expecting an industry-wide rebound” in soured loans, May Yan, a Hong Kong-based analyst at Barclays Capital Inc., said by phone. “Banks this year face pressures from bad loans, particularly from developers and small businesses.”
• Leading Economic Indicators Rise .4%. The index of U.S. leading indicators rose in January and the cost of living climbed less than forecast, pointing to sustained economic growth with limited price pressures. The 0.4 percent increase in the Conference Board’s gauge of the outlook for the next three to six months followed a 0.5 percent rise in December, the strongest back-to-back gains in almost a year.
  
• Consumer Prices in U.S. Climbed Less Than Economists Forecast in January. The cost of living in the U.S. rose less than forecast in January, supporting the Federal Reserve’s view that inflation will be contained. The consumer-price index increased 0.2 percent after no change the prior month, the Labor Department reported today in Washington. Economists surveyed by Bloomberg had forecast a 0.3 percent gain. Over the past 12 months, prices climbed 2.9 percent, the smallest year-to-year advance since March 2011.
• Oil Set For Biggest 2012 Weekly Gain. West Texas Intermediate crude rose as much as 1.2 percent today and is up 4.3 percent this week. Oil for March delivery rose 63 cents, or 0.6 percent, to $102.94 a barrel at 12:17 p.m. on the New York Mercantile Exchange. The contract reached $103.57, the highest level since Jan. 5. Futures are headed for the biggest weekly gain since Dec. 23. Brent oil for April settlement dropped 94 cents, or 0.8 percent, to $119.17 a barrel on the London-based ICE Futures Europe exchange. The contract touched $120.70, the highest level since June 15.
• Canada Housing Poised for 'Severe' Drop. (graph) Canada may be on the cusp of a “severe” housing correction as real estate investment surges above a tipping point relative to economic output, according to George Athanassakos, professor of finance at the Richard Ivey School of Business. The CHART OF THE DAY shows Canada’s housing investment as a percentage of gross domestic product, and the declines in inflation-adjusted house prices that follow when this ratio tops 7 percent.
• Brazil Puts Reach Five-Year High: Options. Options traders are driving the cost of hedging against losses in an ETF tracking Brazilian stocks to a five-year high. The cost of contracts to protect against a 10% decline in the iShares MSCI Brazil Index Fund was 29.5% more than the price of calls, according to Bloomberg. The premium was 29.7% on Feb. 7, the most since February 2007.
  

Wall Street Journal:

• INTERVIEW: Ifo's Sinn: In Greece's Interest To Leave Euro Zone. The head of a prominent German economics institute said it is in the interests of the Greeks themselves to leave the euro zone, because only then can the country regain competitiveness and prosperity.
• IMF Said to Give Less for Greek Bailout. The International Monetary Fund is expected to contribute just €13 billion ($17.07 billion) to a second Greek aid package worth €130 billion, leaving euro-zone governments to provide a much bigger share of funds than they did in the euro zone's three earlier bailouts, people familiar with the situation said.
  

Fox News:

• Exclusive: Feds Arrest Man Allegedly Heading to US Capitol For Suicide Mission After Sting Investigation. Authorities have arrested a man allegedly on his way to the U.S. Capitol for what he thought would be a suicide attack on one of the nation's most symbolic landmarks, Fox News has learned exclusively. The man, in his 30s and of Moroccan descent, was nabbed following a lengthy investigation by the FBI, initiated after he expressed interest in conducting an attack. It's unclear how the FBI learned of his aspirations.
  

CNBC.com:

• Forget Europe, Oil a Bigger Threat to Asia's Growth: Economists. While investors fret over the debt crisis in Europe and discuss its possible impact on Asia’s growth, one economist tells CNBC that emerging markets face a greater risk from rising oil prices than from Greece’s rising woes.
• MBIA Adds to Fraud Claims Against BofA's(BAC) Countrywide. MBIA claimed it has new evidence of “widespread mortgage-origination fraud” at Bank of America’s Countrywide unit, hoping to bolster its $1.4 billion lawsuit accusing that unit of fraudulently inducing it to insure risky mortgage-backed securities.

Business Insider:

• The Truth About Long-Term Unemployment In America.
• THIS Is The Point Where Gas Prices Start Changing People's Behavior.
• POLL: Scott Brown Is Pulling Ahead Of Elizabeth Warren.
  

Zero Hedge:

• Buba's Jens Weidmann Voted Against ECB's Decision To Undermine The Sovereign Bond Market.
• Why Were The Trillions In Fake Bonds Held In Chicago Fed Crates?
• Greek CAC Trigger Walk Thru.
• Primary Dealers Quietly Brace For Impact: Total Dealer Treasury Holdings At Record High. (graph)
  

Washington Post:

• Overreach: Obmacare Vs. The Constitution.

Reuters:

• iPad Maker Foxconn Lifts China Workers Pay Again. Foxconn Technology Group, the top maker of Apple Inc's iPhones and iPads whose factories are under scrutiny over labor practices, has raised wages of its Chinese workers by 16-25 percent from this month, the third rise since 2010.
• FACTBOX - 'Fiscal cliff' Looms for United States in Late '12. Big tax and budget decisions will not confront U.S. lawmakers for months now that Congress has extended the payroll tax cuts, but a reckoning will be at hand in late 2012 and early 2013. It is being called the 'fiscal cliff' by some on Capitol Hill, and it will likely arrive after the Nov. 6 presidential and congressional elections. The elections are likely to involve intense debate about what should be done. The issues that will confront the United States include dealing with the expiration of the Bush tax cuts affecting nearly all U.S. taxpayers, big budget cuts set to kick in automatically and once again hitting the federal debt ceiling. Here is a summary of approaching deadlines.
• Work To Do To Hit Greece's 2020 Debt Target: Juncker. Efforts to reduce Greece's debt burden to 120 percent of GDP by 2020 are still a long way off target, the head of the Eurogroup said on Friday. Speaking ahead of a critical meeting of euro zone finance ministers in Brussels on Monday, when they are expected to finalize the details of a second rescue program for Greece, Jean-Claude Juncker said there was a lot of work to be done to get the debt down to a sustainable level. Greece's debts currently stand at around 160 percent of GDP. The IMF, ECB and European Commission have carried out an analysis into where the debt will stand after a bond swap with the private sector, with sources saying that they expect the ratio to remain at around 129 percent. The IMF has said that if the ratio cannot be cut to around 120 percent by 2020, it may not be able to finance the second, 130 billion euro program for Greece.
• Copper Falls on China Demand Concerns.
• Deadly Bird Flu Studies to Stay Secret for Now: WHO. Two studies showing how scientists mutated the H5N1 bird flu virus into a form that could cause a deadly human pandemic will be published only after experts fully assess the risks, the World Health Organization (WHO) said on Friday. Speaking after a high-level meeting of flu experts and U.S. security officials in Geneva, a WHO spokesman said an agreement had been reached in principle to keep details of the controversial work secret until deeper risk analyses have been carried out. The WHO called the meeting to break a deadlock between scientists who have studied the mutations needed to make H5N1 bird flu transmit between mammals, and the U.S. National Science Advisory Board for Biosecurity (NSABB), which wanted the work censored before it was published in scientific journals. Biosecurity experts fear mutated forms of the virus that research teams in The Netherlands and the United States independently created could escape or fall into the wrong hands and be used to spark a pandemic worse than the 1918-19 outbreak of Spanish flu that killed up to 40 million people.
• Iran Naval Ships Enter Mediterranean Via Suez. Two Iranian naval ships have sailed through Egypt's Suez Canal into the Mediterranean, in a move likely to be keenly watched by Israel. "Two Iranian ships crossed through the Suez Canal (on Thursday) following permission from the Egyptian armed forces," a source in the canal authority said on Friday. The destroyer and a supply ship could be on their way to the Syrian coast, the source added. Iran and Syria agreed to cooperate on naval training a year ago, and Tehran has no naval agreement with any other country in the region.

Telegraph:

• Debt Crisis: Live. Germany's Wolfgang Schaeuble seeks to reassure Europe ahead of key Greek bailout talks on Monday, as the Dow Jones Industrial Average rises to a four-year high in the US.