Reuters Insider - Inside the News: Greek CDS Payout Risk Exaggerated - Albano
13/06/2016 11:10
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Description: The risk of giant CDS payouts being triggered by a
Greek debt default are overstated and the ECB's
stance of trying to avoid this event could slow
the resolution of the crisis, says Vincenzo
Albano.
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Transcript (May be auto-generated)
0800 in London, 0900 in Frankfurt. Weekend positions squaring sees bunds and
treasuries catch a bit though a drop to one-week lows for the Dollar offers
support to risk assets. Bund futures holding on to early gains with investors
finding reasons to opt for safety trades after another volatile week in the
progress of Europe's sovereign debt crisis. The Euro though remains well-bid
against a generally softer US Dollar clinging to one-week highs above 1.4300.
The Dollar Index is back near session lows after a lackluster attempt in the
last hour to push higher, it sank to a one-week trough early in the Asian
session. Dollar weakness supports crude oil, but isn't sufficient to ignite a
big bid. Efforts by WTI traders to push prices above $99 look unconvincing. Gold
facing resistance too as spot prices edge back up towards $1,500-an-ounce. The
Dollar's drop in general underpins risk assets including equities.
The pan-European FTSEurofirst 300 Index opening up about a 0.1%. 1,140 is where
we stand right now. Greek CDS spreads remain near record highs as markets worry
about the impact of any debt restructuring. For more, let's get out to Reuters
Fixed Income Analyst Vincenzo Albano, Vincenzo, what would the consequences be
for the market if Greek CDS were triggered? Well, Axel, the risk of a CDS payout
is on everybody's mind, but it's a bit overstated in our view. Current CDS net
notional on the Greek debt, according to DTCC, amount to USD5.4 billion.
Assuming a recovery rate of 60%, CDS default would trigger payments for EUR1.5
billion likely to come from the market-makers. Now, EUR1.5 billion is a rather
large payout, minor to the extent of causing another Lehman eventually. Taking
that into account, we find a bit untenable this position of firm rejection of a
restructuring. One would wonder whether the ECB stance is aimed at avoiding CDS
payouts or at preserving own exposure to the Greek debt. Should this beeline
prevail with a split to further stalemate in the solution of the crisis and that
will steepen quite dramatically yield curves across the entire Euro zone. Back
to you, Axel. Okay. Vincenzo, many thanks.
Former IMF Chief Dominique Strauss-Kahn has been granted bail following his
arrest on charges of sexual assault. The release comes with strict conditions
though. Strauss-Kahn will have to post a $1 million cash bail and submit to
24-hour electronic monitoring. French Finance Minister Christine Lagarde remains
favorite to succeed him at the IMF. Fund Acting Director John Lipsky said
earlier she would be among several well-qualified candidates for the job. In
company news, it's a bleak morning for Japanese firms. Energy utility TEPCO has
posted a $15 billion loss for the full year as it battles with the cost of the
Fukushima nuclear disaster. It's the biggest ever loss by a non-financial
company in Japan. The firm said in the statement, there was major uncertainty
over its ability to continue as a growing concern. Analysts estimate
compensation costs to be anything up to $130 billion. And Mitsui is paying $1
billion to BP as part of a settlement over the Gulf of Mexico spill last year.
Mitsui owner MOEX, Mitsui unit MOEX rather, owned a 10% stake in the Macondo oil
rig. The money will go straight to the Gulf cleanup fund. That is it for now. Do
join Reuters Insider again at 1000 for another top news update. I'm Axel
Threlfall. This is Reuters