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.