Comments on: The silly Greek CDS investigations

By: smanjrekar

smanjrekar — Thu, 04 Mar 2010 20:09:28 +0000

I would like to speak about the CDS prices. I have been monitoring the Greek CDS prices since the onset of the Greek fiscal shock. It is true that the month of Feb 2010 witnessed a brutal price volatility, however, the it was more of a downward volatility. On Feb 8 2010, the 5Y Greek CDS stood at 420.69 bps. Since then it has watered down to little over 300 bps.

Hence, there is no tangible and material evidence that after the Dinner summit hosted by New York-based research and brokerage firm Monness, Crespi, Hardt & Co, the traders have shorted the 5Y Greek CDS brutally.

I wonder why most of the times regulators look at CDS from the prism of suspicion. After all not all features of CDS are detestable.

By: M.G.inProgress

M.G.inProgress — Thu, 04 Mar 2010 06:07:58 +0000

The two charts just show as you said the deterioration of Greece’s creditworthiness. It shows a certain level of correlation but it does not show anything, about causation, which would support the thesis pro or against CDS and lack of basis of any investigation. We would need to see the volume of CDS and the amount of naked CDS.

By: M.G.inProgress

M.G.inProgress — Thu, 04 Mar 2010 05:52:47 +0000

You are right that investigation is just stupid and political posture. They could decide just to tax CDS heavily…and avoid any investigation…
http://mgiannini.blogspot.com/2010/03/ma ke-finance-industry-to-pay.html

By: Felix Salmon

Felix Salmon — Thu, 04 Mar 2010 05:28:27 +0000

Y.Alekseyev, I’m not saying that at all. I’m saying that neither Greek CDS nor the euro were hammered or even harmed by hedge-fund short-selling attacks after the notorious dinner on Feb 8. That’s all.

By: Y.Alekseyev

Y.Alekseyev — Thu, 04 Mar 2010 05:00:10 +0000

“To a first approximation, February 8 was pretty much the point at which Greek spreads were at their all-time high, and the smart money was going long Greek debt, not short it. As for the euro, it basically hasn’t moved since that date: it closed on Feb 8 at 1.3643, and it closed today at 1.3695.”

I agree with the rest of the post, but this sort of thing makes me think that you don’t at all mind eating crow for breakfast, lunch and dinner. Isn’t the claim VERY premature? Yes, Greek bonds have tightened a bit, but this may prove to be a very temporary move. And yes, Euro is temporarily not crashing. But picking a point less than a month ago in time and saying that “that was a low and things will only improve from there on out” is rather naive.