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A default but not really a default

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.