Investors bet on prospect of ‘Greek accident’

Financial Times
June 15, 2011

A new bet has been placed on the the Greek debt crisis. It backs a growing view among investors that Athens may be about to suffer a messy default that could spark a run on the country’s banks and a deeper eurozone crisis.

Tensions around Greece again mounted on Wednesday amid bickering among eurozone policymakers and reports that George Papandreou, the Greek prime minister, had threatened to resign.

This triggered steep rises in peripheral bond yields and credit default swaps, with some breaking fresh euro-era highs.

One senior investor said: “There is a meaningful chance of a Greek accident this summer. That involves a hard default and big losses for investors, which could have very worrying repercussions for the eurozone.”

These fears have prompted bets on the so-called “accident scenario”, which involves buying one-year credit default swaps that would pay out big profits in the event of a hard default, typically a non-payment of loans, in the next 12 months.

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