October 25, 2011
It has been blamed by politicians for causing the eurozone debt crisis and attacked as the favoured asset of “evil speculators”.
Now, politicians are seeking to take their revenge: not just with the recent introduction of bans on some trading of credit default swaps but also in their attempts to ensure that any haircut on Greek government bonds does not trigger a credit event.
Combined, these two events could spell the end of the credit default swaps market, say bankers.
Sovereign CDS – used to protect creditors against defaults – have been bought by hedge funds and other investors as protection against possible default. But concerns over this market are rising following the latest plans to hit holders of Greek debt with punitive haircuts of 60 per cent and the European Union wide ban on naked trading, or the buying or selling the assets without owning underlying bonds.
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