What insurance?

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Tte WSJ reports that the ISDA committee agreed unanimously that the insertion of collective action clauses and loss of over 50% of the value of the investment due to the ‘voluntary’ bond-swap did not trigger CDS payments.

There is only about 3.2bn in Greek Sov CDS left outstanding, so the narrow question is no longer of systemic importance.

Indeed the non-trigger may be the more systemic event.

Surely, this is exactly the type of event folks were insuring against when they purchased CDS. I suspect the cheapening of Portugese Govt bonds over the prior few days reflected an anticipation that the committee would not find default – and hence that Portugese Govt Bond positions were essentially uninsured, and uninsurable, despite CDS coverage.

Sovereign CDS is now a market in crisis.


    1. I should think that the majority of the voters will take their medicine in the bond-swap, and do not have much interest in triggering the CDS.

      The 15 voters are:

      Bank of America Merrill Lynch Barclays Credit Suisse Deutsche Bank AG Goldman Sachs JPMorgan Chase Bank, N.A. Morgan Stanley UBS BNP Paribas Societe Generale Citadel Investment Group LLC D.E. Shaw Group BlueMountain Capital Elliott Management Corporation PIMCO

  1. “Non-trigger” is not an event, just a determination that no event has yet occurred. If and when the holdout bondholders fail to receive a payment when it’s due, the CDS will trigger and their insurance will work just fine. Those who intend to tender their bonds into the swap have long since sold their CDS at prices that imply default, so their insurance worked just fine too.

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