So Fitch is saying the Greek haircut is a default event, bond holders will “voluntarily” lose 50% but the ISDA says credit default swaps will not be triggered.
Something doesn’t seem right here.
Let’s say I’m a bank who bought Greek bonds years ago. Shortly afterwards I bought CDS as insurance, paying a premium every year for the safety of knowing my downside was protected. But now I’m taking a 50% haircut and my insurance doesn’t pay out.
I understand not wanting to pay out speculators but this will lead to more volatility in bond markets because no one can trust CDS anymore. I also assume the banks that were hedged were given some kind of backroom deal. Bloomberg touches on the Greek CDS conundrum here.