It Depends What the Definition of Default Is
You silly sovereign CDS holders thought you had something of value didn't you? I'm so sorry, the appropriate instrument for today's "event" is the CHS - Credit Haircut Swap. Credit Default Swaps on sovereigns are worthless. Thanks for the risk-less cash flow though, piggy.
More from ZH, the source of the graphic
So,Also Mish with some commentary
the European joke has come full circle. Indebted nations borrow more
money to bail out other indebted nations who ask insolvent banks to cut a
50% off deal on the loans that were given to them, but the insolvent
banks will then have to raise capital which the will of course borrow
from the over-indebted nations whom they just gave money to. Get it?
Problem solved - BTMFD!!!
As a result of labeling 50% haircuts "voluntary", Credit Default Swap contracts have proven to be useless when it comes to protecting against sovereign default. The serious implication is investors will need to find another way to hedge.And Denninger
In yet another stunning "agreement", this will somehow not trigger credit default swaps - in other words, they're not really default swaps any more, now they're "whatever we call thems when we want them to be whatevers."UPDATE: another ZH Post authored by Finance Addict
The big question–apart from how many investors they will get to go along with this, given that they couldn’t reach their target of 90% investor participation when the write-down was only going to be 21%–is whether this will trigger a CDS pay-out.
That this is even up for discussion is mind-boggling. These credit default swaps are meant to be an insurance policy in case Greece doesn’t pay the agreed upon interest and return the full principal within the agreed timeframe. If they don’t pay out when bondholders are taking a 50% hit then what’s the point? I call shenanigans.