Greek CDS unmoved by ISDA ruling

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If the market believed the ISDA is not going to trigger CDS, they would be plunging after the decision, yet they’re trading flat to slightly higher.

Today’s ruling from the ISDA on Greek credit default swaps clearly left open the possibility of further rulings, either after the collective action clauses are implemented or someone isn’t paid out on March 20.

The situation in the Hellenic Republic is still evolving and today’s EMEA DC decisions do not affect the right or ability of market participants to submit further questions to the EMEA DC relating to the Hellenic Republic nor is it an expression of the EMEA DC’s view as to whether a Credit Event could occur at a later date, in each case, as further facts come to light.

The WSJ has more on why this decision isn’t the final word.

Author: Adam Button

Adam Button is the managing editor of ForexLive™. He was previously the chief currency strategist at XForex and has also worked with Intermarket Strategy. Adam believes there's an edge in knowing every tidbit of news. He was formerly the head of the markets team at the Canadian Economic Press and is a graduate of Ryerson University. Adam lives in Montreal, follow him on Twitter: @FX_Button.


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  1. Adam thx for clearing that up. You mentioned earlier that its a max of ~3B. Given Greek banks holds most of the bonds, is it likely they will trigger an event? How do you see this playing out in the event that they were to be triggered? Is this part of the reason for EU hold-out against full tranch – to try to ensure the CAC majority bondholders accept the status quo swaps hopeful no strays try to trigger CDS?

  2. In my mind, it should only take one holdout to trigger the CDS. One person not getting paid out in full is a violation of the bond contract. The group of German bondholders seem particularly militant so they will definitely be holding out.

    At this point, I believe it’s a market positive if the CDS are triggered. The funds gained or lost are already factored in so the unwind shouldn’t cause a ripple, although it could, so there’s a risk there. A negative decision would be worse because it effectively kills the CDS market and all the pensions and banks holding debt and CDS in other countries as insurance won’t know what to do.

    To make an analogy, it would be as if all home-owners insurance were suddenly voided. People would stop buying houses and the market would fall. The same thing would happen in the sovereign debt market.

  3. Thx Adam. Also like the colourful description ‘seem particularly militant’ – made me laugh.

  4. This is some background on DSW, which is the German group FYI.

  5. So does “market positive” mean EUR/USD would go up? That would push USD lower, which might mean European equities would go higher. It doesn’t seem likely, because some large banks are probably sitting on CDS contracts they would need to pay to CDS holders.

    I think markets would drop, and the EUR/USD pair drop, but only for a few days. There would be immediate uncertainty on whether the CDS writers would pay the CDS holders in full. I hope we don’t have an AIG type situation where someone wrote CDS without adequate collateral.

  6. That’s the risk, that someone isn’t hedged. But AIG was a surprise, this isn’t. Remember too that if CDS aren’t paid, someone who thought they were hedged is going to get killed. … when I say market positive, I think it will would be good for risk assets, mildly. EUR might trail a bit because the event is in Europe. But once the uncertainty about an AIG-type situation passes, it would be positive, because that risk will be removed.


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