Thursday, July 21, 2011 Germany and France hold late night Wed meeting; the gathering lasted

for 6hrs+ and ECB chief Trichet joined the two heads of state; according to wire reports, Merkel and Sarkozy have reached a compromise agreement on Greece that has been given the blessing of Trichet. The accord will be presented to Eurozone leaders later on Thurs at the broader leaders summit and should pave the way for a second Greek bailout to move forward and include private sector participation. WSJ Greek proposals could trigger selective default categorization (this isnt idea but avoiding selective default would be difficult); but guarantee may be issued to keep debt eligible at ECB if default becomes inevitable a senior Eurozone official tells DJ that the current proposals would likely trigger a selective default. The current proposals being looked at center on a 30-year bond-exchange program where old debt maturing in coming years would be exchanged for new paper with much longer maturities. However, in order to make Greek paper still eligible at the ECB, Eurozone officials are considering a guarantee of all Greek debt. Policymakers would aim to keep any period of default as brief as possible. Bloomberg/DJ

Plans have been coming together over the last few days and ten year yields, yield spreads and CDS have responded by all moving lower. Wall St firms are preparing for the possibility that Treasury may default Ibs are taking steps to reduce the risk of holding Treasuries or angling for ways to make profits from any possible upheaval. Mutual funds are making presentations to persuade their boards they should continue to hold US govt debt even if a d/g occurs. Hedge funds are stockpiling cash so they can buy up US debt if other investors flee NYT Companies step up layoffs according to the WSJ article discusses how firms like CSCO, LMT, Borders, etc, have all announced headcount reductions. Part of the problem may be temporary. However, there remain deep seeded issues w/the economy. WSJ