Friday, November 18, 2011

Unintended consequences

The unintended consequences of trying to reduce the Greek debt burden while preventing the triggering of CDS has the unintended consequence of making all bond positions look vulnerable (even when there was a previous CDS protection. The FT quotes Commerzbank chief a:
"Mr Blessing criticised the Greek agreement since investors that insured Greek bonds using CDS had not received a pay-out because the voluntary agreement was not deemed to be a so-called “credit event” and thus did not trigger CDS payments."
This can lead to other bond holders selling the bonds because they find that they are not protected from default.

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