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Greek Cash-CDS Negative Basis Spread Hits Record, CDS Implies 33% Chance Of Eurozone Collapse
Another glaring example of how broken the Greek funding market is, is the record negative basis spread in Greek 5 Year Cash-CDS, which as of today is almost -200 bps (see below). As a reminder, the basis trade's massive inversion in the days after the Lehman collapse is among the primary reasons for the implosion of Merrill, and the spectacular blow up of Deutsche's prop trading desk. What the primary implication of this observation is that the market is essentially saying that the imminent Greek bankruptcy will likely be in the form of a voluntary restructuring, which will not trigger CDS, although that is not the full story. The risk/return scenario, as Credit Trader points out, is assuming a 200bps upside to bond spreads, or a 400 bps downside to an inline level with the rest of Europe, in essence a 33% chance of a free fall bankruptcy, whose implication would most likely be the collapse of the Eurozone, as the EMU would be defunct if a member country escalates into an uncontrollable bankruptcy.
h/t Credit Trader
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And the Euro is rallying why?????
Just like for the stock market, it doesn't matter - the euro is in rally mode. Once again, investment flows totally overwhelm fundamental reality.
See the post of GS recommendation to short with a stop at 1.3420. !!
who cares? time to swap out the uggs for the summer tevas!!!
Gold just moved up fast...why??
Got physical gold?
GBP is also doing a dead cat's bounce ahead of the upcoming carnage. http://news.sky.com/skynews/Home/Politics/Leaders-Debate-Mixed-Results-For-David-Cameron-And-Nick-Clegg-In-Opinion-Polls/Article/201004415613588?lpos=Politics_Carousel_Region_0&lid=ARTICLE_15613588_Leaders_Debate%3A_Mixed_Results_For_David_Cameron_And_Nick_Clegg_In_Opinion_Polls_
Does this have anything to do in the metioric rise in gold and silver over the last hour?
Greece is doomed. That's great. Will this affect sales of Anthony Quinn Movies?
"The Don is Dead"!
Don of the Dead
And equities would rally how much if this came to fruition?
Only 33% chance? Is this a bull case or a bear case?
Gotta love how they just ran the EURO back up to almost 1.34 on failure news
What the hell is wrong with these markets?? None of them are trading right, and they wonder why people refuse to put their money back in with these crooks controlling prices.
I covered a good EURO short at 1.3230 early this morning from 1.3388 then shorted again when it went to 1.3322 a few mins ago and they immediately ran it up to 1.3365 within 2 mins with bad news floating all around EUR
ROFLMAO guess I short it again when it tops out today too. EURO is history soon. I guess my point is the blatant manipulations to prop the currency up. These crooks have no shame these days, they don't even try to hide corruption and price fixing anymore. But they can only delay the inevitable so long no matter what they try.
Let's forget spreads and so on. Everybody knows that Greeks won't be able to pay back the debt! The game is how long that guy Papandreou will drain Greeks to allow lenders to recoup their principal - before some revolution starts. They just rolling over the debt at higher rate to speed up repayment and let creditors to get as much as possible back, it will fold down any way but the guy does the best to fuck the population up as much as possible. American educated, isn't he?
We're still in the "Equity Top Blow-off"! Check back at DJIA 36000.
jkruffin: What makes you believe the EUR should decline if Greece actually defaulted? Did the Dollar not rally after Lehman etc? If there is a writedown of Euro denominated credits - it is a shrinkage of Euro "money supply" and one could easily argue the Euro should rally. If Greece actually dropped out of Euro one would expect the EUR to rally very hard. However these .5% intraday moves mean nothing - just technical trading and the big boys taking retail money by running stops.
Maybe a different currency case? USD vs Eur in a contagion sovereign crisis? No contest. Long term bearish on USD but EUR is not safe haven play should Greece fail given neighboring states condition and current attack on region.
http://online.wsj.com/article/SB1000142405274870387640457520001244909788...
Due to the fact that there are 5 other countries lined up to follow the footsteps of Greece
Whether they refuse to bailout Greece, or do a bailout, one thing is certain:
The rest of the countries in trouble will line up for the same treatment. Either way it is a negative for the value of the Euro. Which is exactly why a bailout of Greece is very dangerous precedent here as is letting them collapse. Either way its a massive blow.
Nothing can stop this melt-up. The shorts have been crushed again and again and they're no longer playing ball. When the FED finally loses it's grip on equities the drop is going to be epic and no one is going to catch that knife.
This would indicate to any rational person that this is bad for equities, so therefore equities to the moon
will the FED ever loose it grip?
Bailout Greece - eat more olives
get ready to pay suckers. America's production line is in full swing
http://www.youtube.com/watch?v=qWqyufv7UIU
"The risk/return scenario, as Credit Trader points out, is assuming a 200bps upside to bond spreads, or a 400 bps downside to an inline level with the rest of Europe, in essence a 33% chance of a free fall bankruptcy, whose implication would most likely be the collapse of the Eurozone, as the EMU would be defunct if a member country escalates into an uncontrollable bankruptcy."
No offense, but this is a pile of bullshit. Firstly, there is no liquidity in the Greek CDS market, so what you see doesn't tell you the full story. Secondly, the basis between the two reflects the potential of debt restructuring not triggering the CDS contracts. However, there are many reasons why a restructuring would trigger (lets say those that agree to an exchange end up with a senior claim over those who do not).
But to suggest a "disorderly" default would cause a collapse in the Eurozone is horseshit. Clearly there is near term downside, but there will be many looking at this situation and saying if they go the German route (pain today for long term stability of the currency) versus the US route (bailout everything that moves and to hell with inflation) would increase confidence in the monetary integrity of the Euro. The EMU would not be defunct because one of its members goes bankrupt.
I agree with you if Germany stays with the euro.
If they decide to bail, their new currency (mark) will, over time, appreciate against the euro. The current German industry's debt will be valued in euros and can be depreciated away as their revenues are in the new "marks" and their debts are denominated in "euro-lira/drachma".
Why would Germany et al stay with the euro?
Equities trade like FX today - well the EUR at least - all the reasons for being short are already there, there's no new sellers, so the mkt rallies to take out weak stops. Bearish flows on the closing auctions in europe show the short equity trade going back on again... expect the dow to rally now. As usual...
After the overnight move a lot of asian traders are clearly short EUR and hurting. I guess the GS level is where they can see client stops run out... so I wouldnt short the EUR until we get up past the GS stop level, say 1.3440...
Anyone know a bloomberg page for the Portuguese bond market? Strangely, its never come up before...
Have a good w/end ZH, you rule.
So what happens if the EU/IMF loans Greece the money they need and Greece still fudges on their austerity plan and does not pay back? Do we get an endless cycle of rolling over the debt until something finally blows up? Sounds like Greece will blow up into civil war.
They don't have nuclear weapons do they?
I don't think anyone believes the 13.7% deficit number. Eurostat is playing the "Great Game".
Greece and the EU are talking past one another. The current expectation is that the Greece austerity plan will result in a deficit of 8.5%. This is 4% less than the 12.5% deficit that was presented a while ago.
Greece is talking that their austerity plan will reduce their deficit by 4% from whatever deficit number they need to factor. This moving target will prove that the Greeks have done their part with their austerity plan while in fact they will have done little to reduce their deficit.
Expect the deficit to be found in the 17% range, therefore the Greeks will feel the need to reduce its deficit to 13%.
No but they do have submarines, having spent their cheap EUR funding wisely...
Check out the wonderful story
http://en.wikipedia.org/wiki/Type_214_submarine#Greek_Navy_orders
Tyler,
Could we do a thread on the benefits for Germany should they keep the euro? I think this will be enlightening, to me anywayz. One can argue that the EU gives them access to a bigger market. But hey, who needs bankrupt customers?
Here is a link to a good read about Germany's possibilities.
http://www.financialsense.com/fsu/editorials/amerman/2010/0419.html