For those who have been following the Greek crisis, they know that March 8 is the deadline for the bond swap that is essential in ensuring an orderly default of Greek bonds. Just 12 days later, Greece is due for repayment that without any haircut to its bondholders, there would be a chaotic default.

The bond swap plan is essential in keeping Greek public finance under control, however arbitrary the preferred debt-to-GDP ratio is. According to the Debt Sustainability Analysis paper dated February 15 leaked during the Greek debt negotiation, a 5% reduction in bond swap participation will increase the debt-to-GDP ratio by 2%. And the baseline assumes 95% take-up rate to reach 129% debt-to-GDP ratio. The magic number is 120% and in order to achieve that ratio, the take-up rate has to be high.

Here is the problem. Some bondholders may have bought credit default swaps in anticipation of a technical default some time back. It is in their best interest to not participate in the Greek bond swaps and trigger the CDS. Participation in the swap will not trigger the CDS.

The deal with the CDS is tricky. I myself am a bit unclear if holding  the precarious Greek bonds until maturity and default will actually trigger the CDS. A broker told me just now that there are so many CDS with varying conditions that it is impossible to know just which CDS will trigger. Ultimately, what is unclear is which is better: the haircut bonds or the payout from the CDS?

I am betting some will in event of plain old default and that will be the reason for some to reject of the bond swap deal. Big enough a rejection and we will find ourselves in a financial whirlwind all over again.

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