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  #625 (permalink)

Rockland county , New York
Trading Experience: Intermediate
Platform: NT 7
Favorite Futures: CL, 6E, SI, ZC
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Posts: 235 since Mar 2011
Thanks: 340 given, 80 received

CDS's and the Euro

What I'm trying to wrap my head around is the effect of the ISDA saying that a 50% haircut on greek bonds (at maturity???) *is not a default will have on the (200 trillion??) CDS market.

The EU has to avoid a Greek default at any cost because the euro is set up that all EU members can print bonds - so if Greece defaults they are defaulting on the euro.

But to the private debt holders about to take a 50% hit on Greek bonds that paid for unregulated insurance in the form of CDS's - get nothing for their hedge - how would that not cause a derivatives meltdown like when MBS failed.

If the CDS market crashes will bond holders of other sovereign debt (that can't possibly be repaid) react by selling because they can't hedge against losses? Junk bonds have been looking juicy to short.

A partial default is clearly a credit event whatever the ISDA wants to call it. If the CDS are to be honored I'm skeptical that most of the institutions issuing them have the capital to live up to the agreement. That would cause a market crash also - no?

"Be right and sit tight." - Jesse Livermore

Last edited by whatnext; October 27th, 2011 at 05:12 AM.
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