Comments on: Trash heap for sovereign CDS? Insights behind the investment headlines Wed, 16 Nov 2016 21:43:49 +0000 hourly 1 By: SDerivatives Mon, 31 Oct 2011 14:43:24 +0000 The consensus is that a 50% haircut on Greek debt, short of triggering a credit event, will do more harm than good. Regulators are yet again undermining CDSs, the very instruments put in place to hedge against corporate and sovereign risk, leaving market participants questioning whether the focus was really on stabilizing the Euro Zone economy or it was a way to avoid a Lehman-style collapse of the Hellenic Republic of Greece.

From my perspective a Greek default would actually benefit the Euro Zone. This would provide a shot across the bow to Portugal, Spain or Italy to get their economies in order expeditiously, bringing more stability to the EU. The lynchpin to market stability is accurate, real-time pricing data. For example this afternoon, Greek CDSs were trading erratically with most showing a sharp tightening of their five-year spreads to around 54% upfront or 3,600 bps. This is a time when pricing data is vital. Without this information, customers have no visibility into the CDS market, inhibiting their ability to utilize this instrument to effectively hedge.

Ultimately we won’t know until sometime in 2012 how this will all play out. However, we do know we’re on the precipice of some market changing decisions within the CDS community as to whether these instruments can be used as an effective hedging tool moving forward.

–Jonathan Epstein, head of credit derivatives, SuperDerivatives