Comments on: Why the Greek CDS market is OK

By: eManu

eManu — Tue, 13 Dec 2011 01:43:53 +0000

It’s not ok. check out what this guy has posted.
http://trendwhizo.blogspot.com/2011/12/j oke-of-day.html

The CDS was above 10K bps…implying the cost of insurance was more than the par value of the underlying bond.

By: Rocker32176

Rocker32176 — Sat, 29 Oct 2011 14:39:14 +0000

Well actually this isn’t true – I’m just painting a theorectical agrument for why Greece CDS could still be triggered.

Could this not be possible as the PSI is currently worded?

By: Rocker32176

Rocker32176 — Sat, 29 Oct 2011 14:24:21 +0000

Hedge funds began building up Greek bond positions on Thursday morning – with the intention of refusing the PSI under all circumstances. Most are backing their positions with out-of-the-money puts on equity indices – aiming to gain from an equity selloffs after a forced default of Greece.

With the ISDA credit defintions the default requirement only (the equivalent of) USD 1m, it doesn’t take much to force a Credit Event invitiing private investors to join in aswell. Greece will either have to default or pay out billions in windfall gains to speculators.

By: dandraka

dandraka — Sat, 29 Oct 2011 08:05:31 +0000

“Greece has a lot of private-sector debt; most of it is held by banks.”
Don’t you mean public-sector debt ?

By: mattdebord

mattdebord — Sat, 29 Oct 2011 03:38:59 +0000

This post actually crystalized my belief that CDS are a necessary evil at the hedge level that have been redeemed by their market function. I don’t know if that was your objective, but it’s nice to see them not blindly understood as insurance.

By: SimonLack

SimonLack — Fri, 28 Oct 2011 20:28:52 +0000

Felex, ISDA have already indicated Greek CDS contracts won’t pay out:

http://www2.isda.org/news/isda-updates-g reek-sovereign-debt-qampa

Here’s my view:

http://inpursuitofvalue.wordpress.com/

By: Kamekon

Kamekon — Fri, 28 Oct 2011 19:52:57 +0000

“So let’s wait until Greece does something coercive which seriously damages its outstanding bonds. At that point, we can declare a credit event, and move on.

And that’s going to happen: all you need to do to understand that is to look at where Greek CDS are trading.”

Well, let’s have that look (at the 1W chart for instance): http://www.bloomberg.com/apps/quote?tick er=CGGB1U5:IND .

By: rickstevens65

rickstevens65 — Fri, 28 Oct 2011 16:52:07 +0000

The assertion that a credit event is inevitable…on the contrary, all necessary aspects seem to be arranged in such a way that a credit event can be avoided indefinitely. Which does rather raise an existential question for the CDS market, in general: http://bit.ly/vmoMxv

By: knickablogger

knickablogger — Fri, 28 Oct 2011 15:48:34 +0000

Luv ya felix but this one is off base. No one is “sitting at home in New York with a few Greek bonds in my brokerage account” b/c US investors/brokerages cannot legally own Greek eurobonds, which are bearer bonds held in the name of a qualified financial institution custodian. If your’e sitting at home in London/Paris/Milano and your QFI is one of 400+ banks/brokerages which have signed on to the write off, you “care very much what Sarkozy or Merkel say” b/c now you are going to get a 50% haircut, since your bank, not you, is the legal owner of the bond.

By: klhoughton

klhoughton — Fri, 28 Oct 2011 14:49:09 +0000

“If and when Greek CDS spreads come down even as Greece’s creditors are forced to take a 50% haircut, I’ll concede that the sovereign CDS market is broken.”

If the bonds are currently trading (or at least priced) around 40, why would that change your mind?

The market in Greek Bonds believes–correctly, for anyone who can do basic math and doesn’t assume Greek millionaires are suddenly going to start paying their tax bills–that they will be lucky to get 40 cents on the dollar.

The CDS market (pretending its real, pretending its not based on speculation but rather hedging–may I have a pony, too?) believes that =current= Greek bonds are in severe danger of default. (CDS people can do math and never believe anyone will pay taxes.)

If the refinancing goes through on non-Argentine terms–a bad but Trichetian idea–the new =current= Greek bonds will be more affordable to the sovereign. Yes, there will still have to be some additional tax compliance–and they’re selling their grandchildren’s future, but that’s another story–but the probability of default will be significantly lower.

If the CDS spreads on Greek bonds =don’t= contract, it will be a sign that the Sovereign CDS market (which shouldn’t exist anyway, but that’s a side issue) is broken.

(As Brad DeLong had noted to him, the Greek government should just Do the Right Thing on any bonds that remain outstanding–follow the Australian tradition and declare that they will pay them in full, but that they will be subject to a 60% tax rate, withheld. [The extra 10% is for not going along with the programme in the first place.] That’s not a Credit Event either.)