Feb
07

Creditless-Default Swaps?

As the Greek government defaults on its bonds, holders of Greek credit-default swaps will probably get nothing as the default will be “selective” and will thus not officially trigger a default. This not only hurts banks who thought they were hedging by buying the CDSs, but also Portugal as it will discourage banks from holding its debt if they cannot hedge against a default. This will raise yields and increase volatility.

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