Thursday, March 15, 2012

Greek bond protection payout to hit $2.5bn

Financial Times
March 15, 2012

Investors holding insurance-like products as protection against a Greek default, the world’s biggest sovereign debt restructuring, will receive about $2.5bn, according to market prices on Thursday.

An auction of credit default swaps on Monday will use the price of the new Greek 30-year bond to settle payouts as part of the restructuring.

These bonds are trading at a price of 23 cents on the euro. This means buyers of CDS protection can expect a payout of 77 per cent of the net outstanding amount of Greek default swaps in the market, which stands at just above $3bn. The payout will be about $2.5bn.

Although the payout settlement process is expected to run smoothly in Monday’s auction, market participants fear the relatively new sovereign credit default swaps market may have been undermined by the Greek default.

One senior CDS trader at a European bank said: “We think the Greek auction will provide a fair price for those who have protection, but it is unclear what will happen if other sovereigns default. That could deter institutions from using sovereign CDS in the future.”


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