Guest Post: What Does It Mean If Greece CDS Is Trading At 2000 bps?

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

What Does It Mean If Greece CDS Is Trading At 2000 bps?

In the past few days reporters from Bloomberg, Reuters, and the FT have all basically said the spread is a per annum fee to insure against Greek default.  That is not actually correct.  If someone buys 10 million of 5 year Greek CDS at 2000 they do NOT pay 2 million per annum until the maturity or a Credit Event occurs.  They pay 500,000 annually, quarterly in arrears until the scheduled maturity date or a Credit Event occurs, AND they pay 3,662,325 up front. This is a big distinction.  It is true for all CDS.  The quoted running spread is converted to an upfront payment based on an actual running spread of either 100 bps or 500 bps depending on the name.  Certainly for tight names, this difference is more of a technicality, but for distressed names it is meaningful.

I don't think anyone in their right minds would sell Hellenic Republic CDS at 2000 bps running.  That would entitle them to earn 20% per annum, quarterly in arrears until maturity or a Credit Event occured.  So if you wrote that CDS on Monday and there was a Credit Event the next day, you would have made 1 day of interest and now lose 100 - the price of the cheapest to deliver bond.  About 55 points (assuming cheapest bond is trading at 45 right now).  That is a very different risk/reward profile than receiving or pay 36 points up front.  If that case, if there was a default tomorrow, you would lose about 19 points, again assuming a cheapest to deliver bond of 45, giving a loss of 55 points on the contract.

The prices quoted at in bps, but there is an actual price associated with each spread and right now for Greece it is around 35 points up front.  That is accurate.  Any article that merely converts it to a running per annum fee is plain wrong.

Is 35 points up front the 'right' price for 5 year CDS.  I don't know, but it is roughly the current market price.  The Greek yield curve is inverted, but shorter dated bonds still trade at a higher dollar price than longer dated bonds.  Is that right?  Again, I don't know, but that is where the market is today.  The shape of the yield curve, the actual prices for bonds, and the CDS market are related and can be evaluated for the best investment ideas, but it is important to be using the right data, and reporters need to start accurately stating what it costs to buy or sell CDS on Greece and other entities.

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Hacksaw's picture

This is way OT but I was just wondering if anyone has any news on this. Is the US having it's own Fukushima?

ThoughtCriminal's picture

see this for links to other news headlines (below):

"Nebraska Nuclear Plant at Level 4 Emergency, June 14, 2011, By Tom Burnett


Electrical Fire Knocks Out Spent Fuel Cooling at Nebraska Nuclear Plant

Fort Calhoun Nuclear Power Plant Spent Fuel Pool Cooling System Stopped Working For Hours

Nebraska Nuclear Plant Lost Cooling System After Fire

NRC Monitors Second Event at Neb. Nuclear Plant Following Fire, Disruption of Spent-Fuel Cooling

No Fly Zone Over Fort Calhoun Nuclear Plant Due to “Hazards”

Dam Danger, Flooding and Ft. Calhoun Nuclear Power Plant

Electrical Fire Knocks Out Spent Fuel Cooling at Nebraska Nuclear Plant

NRC monitors declared fire alert, flood dangers at Fort Calhoun nuclear station

Use of Weapons's picture

Check my posts - I went on a quasi-batshit ranting Friday comedy hour on 10th June, all on a single thread [for great satirical reference] and hidden amongst the rants was the fact that you had a #4 category nuclear warning going on. Oh, and Fukushima started off as a 4, remember?


Apparently, that was 9 days ago.

hbjork1's picture

Agreed, U of W

Saw the warning.  Confess I did not remember who posted it.

Like Three Mile Island,  IMO, the investigation will indicate that "money saving" steps were taken in the design or placement or construction.  I am opinionated because my first job out of school happened to be at Savannah River when they were making weapon grade fissionable materials. 

Nuclear should be part of the energy availability fix but fundamental design and construction considerations of potential topographical problems have to be competiently addressed to build in safety factors.  Nuclear facilities should be designed for the extreme events. 

Cleanup is very expensive.  And Japan has some heroic workers who went into situations that will shorten their lives. 

The Aviator's picture

rense has been covering it. apparently authorities are telling people to stay away from the mississippi

Atomizer's picture

All drooling proles must place their bets before the roulette wheel spins.

Ticker Street's picture


For the fear and panic you create on the interweb, you probably will earn pennies.

If I were you, I would quit this tedious job of flogging like a

mad dog for pennies.


Atleast you stopped pumping Silver after its crash from $50 to $ in 3 days. I haven't seen you on Kitco ever again after I kicked your silly posts there.

I hope you become an adult one day.


monkeys.pick.bottoms's picture

"independent thoughts lead to chaos" "everything is OK!"

what a post. Taking the piss, are we?

farmer1's picture

Tyler is working on topics more important than money via this website - if he was doing it for the money he'd be either part of TPTB or their enabler - he'd be a bankster and he wouldn't talk.

Arrowflinger's picture

Here's a Junk uptick, gleefully administered.....

Bay of Pigs's picture

Is that you Nadler?

No doubt....Tyler on the Kitco board? Yeah, he doesn't have better things to do with his time.

speedy's picture

Mr Ticker Street ( or is that Douchinger),

you take Tyler far too seriously. But, what is even worse, you take yourself even more seriously.

Go and Troll somewhere else.


Manthong's picture

+1 on the response.

^10 on the new avatar benchmark.

Noah Vail's picture

So, a Pakistan newspaper citing claims by a Russian government agency.


Yep, that is surely reliable info.

Ergo's picture


If you don't want information, don't read the site.  Stick to cnn and cnbc for corporate approved news.  Those of whose who appreciate thoughtful analysis - uncensored -over a broad array of economic topics, will continue to do so, as I'm sure the click rates evidence. 

As for silver, plenty of us made money on the way up.  And it remains in play, whether up or down, given the ongoing uncertainty - and thus a major topic of interest. 

Max Hunter's picture

I hope you become an adult one day.

And we hope you lose your Internet connection..  You have single handedly brought down the mean IQ of commenters on this forum by 10 points.. Congratulations.

oogs66's picture

if he would just go away and only comment on cbns's website the average iq of both websites would go up :)

The Aviator's picture

go back to trading netflix and apple Ticker Street

SilverDoctors's picture

@The Aviator- yes, obviously our time is running out. Thats why the Silver Viral Project is so important, we need to do everything we can to help the sheeple survive the coming currency collapse! 

oogs66's picture

I also hope it means that the stock market has been more stupid than usual in ignoring it and is going to crash through the 200 DMA!

The Aviator's picture

im sure Tyler has better things to do than to respond to trolls like you ticker street. he leaves that fun for the little guys!

Reese Bobby's picture

"...reporters need to start accurately stating what it costs to buy or sell CDS on Greece and other entities."

Why?  They are reporters.  What difference does it make how accurate they are?  the point is Greece CDS is in the toilet.  You can quote it on spread, price or implied default probability but the conclusion will be the same.

Q: Where is Greece CDS?  A: In the shitter.

Jack Sheet's picture

Agreed. This column is as tedious and repetitive as Phoenix Capital Research. Mr Schir: please state your credentials and surprise us with your CV. Bachelor's in Gender Studies and 2 years in journalism?

Threeggg's picture

Tickler treet

In your first post you say:\

"For the fear and panic you create on the interweb"

In your second post you say:\

"who are living in a fantasy land after being wiped out of everything"

Oxymoron ?

disabledvet's picture

"all talk and only talk" is Europe.  RIGHT NOW.  Obviously i've disagreed with this site en toto in relation to the Paulson bailouts per "effectiveness" tho not perhaps in relation to "morality" or more specifically "vote getting."  If you have not read HP's book on the financial crisis it is in actuality "The Primer" and as such a must read.  As Europe's variant now unfolds before our eyes i've thought of the difference between the two.  Here's my "movie variant" of both the "how to" and "how not to" version of bailouts (the humor as is all my humor specifcially designed for larger and to achieve the inverse effect) to show "you go ahead and try it!"

the "serious" point of course is that it's Europe's job to fix this crisis...and Wall Street's job to "back test said fixing" for its benefit.  Here's my view of how the "back test" is going (apologies to DSK)

farmer1's picture

Tyler - can you put the CDS cash flow in a spreadsheet and post it so we can see it better?

magpie's picture

Am neither a lawyer or bond trader - is there any kind of legal recourse in case a credit event that isn't supposed to be a credit event occurs ?

oogs66's picture

i assume you could sue the counterparty or ISDA to have the credit event determination committee decision overruled? 

ZeroPower's picture

Re ISDA, its my understanding those are rather (at least appear to be anyway) democratic decisions when determining to classify said credit events. These auctions can go quite favorably sometimes - rememeber last year Cemex went out at something like 95% par whereas more recently Ambac Fin'l was bid at under 10% if i remember correctly.

Arrowflinger's picture

Buying/selling Greek CDS may entail the enormous up front premiums on $10 million, but how many are being executed? A relatively small number of such CDS executed, or perhaps even the quotes for same, has an outsized impact on the Greek bond market. The swings that can be effected and the trading profits thereupon on the whole market turn $3 to $5 million cash outlays for the CDS into a cost of doing business.

Free money from BOJ and the Fed turned loose means they can do such manipulations risk free.

The ponzi just morphs and expands unabated.


oogs66's picture

the Greek bond market is virtually non existant.  there is so little liquidity the bid/offer is huge and no one is trading any volumes, the only market that still tries to put a price on greek risk daily is the 5 year cds market.  that might be sad, but it is largely true.  if dealers or customers were willing to buy bonds in any size, they would go up.  and at this point you can buy 10 million of bonds and only pay $5 million.  Why is that less attractive than buying 10 million of CDS and paying 4 million? 


the CDS is linked to the corporate/sovereign debt market, but as much as it might feel good to rant about CDS, it is actually more liquid - quoted more, traded more, and on a tighter bid/offer spread than a lot of the corporates/sovereigns that it references.  That is not the case for Germany, France, US, where liquidity and volumes in bonds is extremely high relative to CDS.  Why?  because those are still interest rate markets not credit markets.


DNB-sore's picture

So if you buy CDS for 10 million Real time now it's going get paid 8,662,325 total (3,662,325 up front and 10x500,000) till the cds matures or something? Means taht the markets priced in "it can only get better"

How was it 3, 6 12 and 18 months ago?

Not forgetting Paps sold 1,3 billion of CDS to friends that have gained 25 billion, 3 months was good and a samll party, 6 months meant spilling a lot of champagne, 12 months and you just could have bought the most vineyards and 18 months, probably all people in the world must be sharing your champagne but with a small difference. They have to buy it


11b40's picture

Have a look at these charts to see what's happened to the price in the past 2 weeks.  Can you say 'moving toward parabolic'?

Ireland – 5 Year CDS

Greece – 5 Year CDS

Portugal – 5 Year CDS

Spain – 5 Year CDS

Italy – 5 Year CDS

oogs66's picture

for the 5 year CDS it would be an additional 2.5 million over the 5 years if there is no Credit Event.  So if you write 5 year CDS at 2000 bps and there was no credit event, over the 5 years you would receive. 5.1 million.

your calculation would be roughly correct for a 10yr trade though I think the quoted spread is tighter than 5 year, the upfront is a bit larger.



JW n FL's picture

What does it mean if Greece is trading at...


It means that the Sheepeople of America are about to get a lesson from the Bankers on what a National Default looks like!


Everyone take out your Pencils / Pens / Laptops / I-Pads and get ready to take notes!


In the event of a National Default this is what America will look like! so make sure the Republicans Up the Debt Ceiling and Sign Off on QE - Infinity! Or! ELSE!!


And Please Sheep don't try to think for yourselves, things go so much easier when you let us do it for you!

dracos_ghost's picture

So I am reading that screen right and the markets are predicting an 86% chance of default?

Greece will agree no matter what the headlines -- barring an outright revolution or coup. Ain't no way the Euro technocrats are going to take a haircut.


bob_dabolina's picture

Therein lies the rub. 

Should the Hellenic Republic not get its way than the entire eurozone is at risk. 

So the core eurozone countries like Germany, France, etc, are being held hostage with MAD syndrome. 

However, there is a line, and should Greece push the limit....well, it all just may fall apart and the chips will fall as they may.

JW n FL's picture

or the top 1% can start paying their fair share and cuts are not needed.. just like here..


Fuck the top 1%.. fuck anyone who is in bed with the top 1%.. and may the World be released from the top 1%'s death grip!


Cuts in the United States are NOT! Needed.. the top 1% should pay their fair share! just like in Greece.. and no matter how many times you fucking idiots say the cuts are needed will NEVER change the fact that the top 1% does not pay their fair share and thusly the World is supposed to suffer?


How many fucking ways do I have to repeat the facts before they sink in you fucking tool?

Reese Bobby's picture

You know what I think angry guy?  High individual marginal tax rates have never solved a country's problems.  How about the rich pay more in return for workfare, instead of welfare?  Dead-beats all too willing to take the hand-outs of our vote-buying Big Government have nearly destroyed our Country.  American men used to have a set.

DNB-sore's picture

Or Ouzo when youl like it (just meant to put in the party-drink)

Atomizer's picture

With the support of the G-20, the International Monetary Fund (IMF) and Bank for International Settlements (BIS) have issued reports with recommendations for more effective

cross-border resolution. (75) The FSB has also addressed some of these issues, with a more comprehensive report coming in 2012. (76) There are some extreme options for dealing with this

issue including an international treaty allocating responsibility among countries for cross-border resolutions or even creating a new international authority, or a requirement that financial

companies operate in all countries through subsidiaries (rather than branches) to facilitate host country control. (77) The former is impractical and the latter would be inefficient—without

branches firms would have to capitalize all operations in each country through subsidiaries. The subsidiarization approach would also run afoul of the E.U. single passport system in which E.U.

banks are free to operate throughout the E.U.




77: See, e.g., INTL MONETARY FUND, supra note 75, at 3

Shall I bring you a bottle of milk or your binky to deafen your crying? 

tboy's picture

Actually Tyler I think Greece trades off 100bps despite being at wide spreads. Your argument still holds but the upfront payment is something like high-40-something points (guessing, don't have CDSW on Bloomberg handy).

oogs66's picture

you are correct, that is the standard, so the up front is even more


Zeilschip's picture

Why would you consider selling Greece CDS at 36pts U/F if (according to the article) your downside is 19pts? If you want to go long Greece, buy the bonds at 45 with a downside of around 5pts (as the assumed recovery is 40%). Best trade however imo is to buy the bonds and do a recovery lock.

oogs66's picture

5 year cds...even 10 year greek bonds are trading at 53, so you would have to buy the long bond.  5 year cds would do nicely if all the banks rolled their maturities out to 10 years, the long bond might not bounce at all.  timing (and maturity) is everything


Zeilschip's picture

In these types of distressed debt situations from my experience (EM) it's the long-dated bonds that will bounce back most exactly because of their duration and the fact that they're pari passu with all other senior bonds. 5 year CDS could get you screwed as you might be delivered 2 year bonds or whatever, while the restructuring process can take much longer than that.