Greece's Prime Minister Tsipras has called for a referendum on the Institutions' proposals. The government recommends a 'No' vote, but argues this is not the same as a vote for 'Grexit'.
The most recent Greek opinion polls point to a 'Yes' to the creditor proposal, but all surveys were conducted before the government recommended a 'No' vote.
In our view, we are on the 'default, but no Grexit' path, but this is not sustainable given the very negative sentiment between Greece and its creditors.
The ECB has decided to keep the Greek emergency liquidity assistance capped at Friday's level, implying there will be no further liquidity support to the banks.
Bank holidays have been declared in Greece from Monday. ATMs are closed on Monday and are due to reopen on Tuesday subject to withdrawal limits.
The IMF payment is not expected to be paid on 30 June. Missing the payment will not trigger a 'credit event' but EFSF loans can be called immediately due.
Focus now turns to the backstop facilities. Both the Eurogroup and the ECB signal they are ready to intervene, but the ECB could have been more explicit.
However, we expect the ECB will step up QE purchases as we enter the week. If this is not enough, other tools are likely to be explored.
The market will be characterised by a broad risk-off move. We expect bunds to rally, core curves to flatten, ASW spreads to widen and the periphery to widen.
In FX markets, the Greek uncertainty should trigger a rally in the usual safe-haven currencies, but it will soon be dominated by expected monetary policy responses.
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