Posts Tagged ‘Italy’

Will CDS Survive the European Debt Crisis?

Governments and large issuers hate them, regulators wrestle with them and the general public do not have a clue of what they are, but Credit Default Swaps are the cleanest way to hedge credit risk. They also promote liquidity (ok, and sometimes volatility) into the bond markets as bond holders can buy CDS protection instead of selling bonds in the open market. But as Greece and other issuers start to test the waters with voluntary bond swaps, where large investors take a significant haircut on the principle value of the bonds in order to stem a default, CDS holders are crying foul.

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