Galery

1

The future of Greek government bonds insurances, CDS, will be decided today, after the International Swaps and Derivatives Association (ISDA) issued an official release on the total amount of compensations. According to Naftemporiki, this amount is expected to be approximately $ 2.5 billion.  Financial analysts say it could not be a threat to the stability of the international financial system, as were the concerns of Europe at the beginning of the crisis. CDS market triggering is unprecedented in the history of the euro area. It represents a major milestone for the European Central Bank, but financial experts are adamant that it will not cause havoc on capital markets.

At the beginning of this week, CDS holders will participate in the auction announced by the International Swaps and Derivatives Association (ISDA) in order to determine the final price or the recovery rate for Greek bonds. Based on this value, the holders of Greek government bonds will receive an amount, which will compensate their losses due to the reduction of the net present value of bonds. According to current prices of Greek bonds, the expected rate will be 23% of the net present value of bonds. This means that the holder of CDS worth 10 million dollars will be compensated with 7.7 million dollars.

According to GRReporter data, Greek bonds were of particular interest to investors in the secondary market last week. CDS holders bought Greek government bonds with reduced value and brokers’ turnovers reached 15 million a day. The major reason was that the greater the number of Greek securities for the holders of CDS, the greater would be the compensation for the specific investor. Once the bonds were not purchased at their original prices, the profit multiplied.

After all, expectations have been confirmed and sellers of Greek government bonds will have to pay about $ 2.5 billion to settle the obligations under CDS insurances. Dealers agreed that the final value of the bonds will be 21.5% of the face value of securities as a result of the auction held today, reports Bloomberg, citing Markit Group Ltd. and Creditex Group Inc. After two years of intensive betting on Greece’s default, the process ends despite European politicians attempts to prevent a credit event for Greece. It has turned out that it will have no such dramatic implications for the international financial system. There were 4,369 outstanding swaps contracts insuring a net $3.2 billion of Greek debt as of March 9, according to data from the Depository Trust & Clearing Corp., which runs a central registry for the market.

"The fact that CDS works means it can remain a viable hedging instrument and be used for trading purposes as well," said Elisabeth Afseth, a financial analyst at Investec Bank Plc in London. "Triggering CDS might have more positive than negative implications for European government bond markets," said Ioannis Sokos of BNP Paribas SA in London. He also stressed that Greece's experience shows that there is a functioning hedging tool for holders of bonds of European peripheral countries.

Participation and bidding in the auction: