Comments on: Lies and truth on sovereign CDS A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: GingerYellow Wed, 10 Mar 2010 16:03:05 +0000 While the BBC as a whole is pretty decent news organisation (particularly for things like range of foreign affairs coverage), the website is shockingly bad, especially when it comes to technical or specialised subjects such as science or finance. It’s scarcely more reliable than the Daily Mail.

By: Greycap Wed, 10 Mar 2010 15:21:14 +0000 Yes, could you explain this market manipulation a little more clearly? So far we have:

1. By CDS protection in advance of bond issuance.
2. Buy the bond on issue.
3. ???
4. Profit!

Assuming that I was able to move the market when I bought CDS, I am left with a coupon that pays higher than treasuries … but it’s a fully funded position and I still have counterparty exposure to my PB. What’s so great about that? And if I close out the CDS position and that moves the market back to where it was, sure I’ll have made some money on the bond but I’ll have lost it on the CDS. Where does the free money come from in this trade?

By: Sandrew Wed, 10 Mar 2010 13:24:21 +0000 How do you drive up the yield on a not-yet-issued bond by trading CDS? They are different markets, no? So by what mechanism does this take place? Are we assuming that underwriters and investors look only to the CDS spread when deciding what price to pay for a bond?

By: DanHess Wed, 10 Mar 2010 00:09:07 +0000 Felix, for goodness sake, stop picking on such easy marks.

Your ignorance in the arcana of CDSs beggars belief, even though you write about CDSs all day long.

You embarrass yourself with every CDS piece you write, not by what you write, but by what you leave out.

If you want to really educate yourself on CDSs, young warrior, you could do worse than starting with some of what Chris Whalen has to say. He is far brighter than I am. nterview-with-chris-whalen-of-institutio nal-risk-analytics.html

Basically, CDS pricing is the essence of everything that is wrong with efficient market theory, which should be dead by now but is alive and thriving.

CDSs are not pricing off of real default risk, but volatility. Oops!

By: expatsp Tue, 09 Mar 2010 23:48:01 +0000 So if the hedgies could use CDS to drive up the spreads on Brazilian bonds to get a better a yield, couldn’t they use them to drive up the yields on Greece so high that it had to default? And presumably there’s a way they could profit by that, if they were sure it would happen?

My question is real, not rhetorical, I don’t pretend to understand these things.

But it seems that the Loomis Sayles guy essentially agrees that CDS can be used to distort the market, which seems to cry out for some kind of regulation, at the least.

By: aristid Tue, 09 Mar 2010 22:56:40 +0000 Wow. So should we credit the New York Times with being slightly less completely wrong? I guess that’s what Krugman meant…