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Greek Credit Default Swaps Are 'Non-Issue' for Market

Monday, 12 Mar 2012 | 7:11 AM ET

The triggering of insurance payments on Greek sovereign debt should be a "non-issue" for the markets, as they will happen in an orderly fashion, a representative of the International Swaps and Derivatives Association (ISDA) told CNBC on Monday.

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David Geen, general counsel at the ISDA and a member of the committee that meets on Monday to decide which bonds will be part of the credit default swap deal, said buyers and sellers of the CDSs will meet in an auction on March 19.

"The amount, which is 3.2 billion [euros] ($4.2 billion)—that's the net position—is not large at all. I think it's kind of a non-issue as far as the market is concerned," Geen said.

The International Swaps and Derivatives Association said late Friday that a “credit event”—or technical default—had occurred in Greece; this means that the sellers of CDSs on certain Greek sovereign bonds will have to pay the buyers.

Greek Finance Minister Evangelos Venizelos told CNBC in an exclusive interview that the triggering of CDS should not worry markets.

“The credit event and triggering of the CDS (credit default swap) is something internal. This is a kind of dealing room between banks and financial entities. It’s not something important for us as a real economy,” Venizelos said.

On Friday, the ISDA’s CEO, Robert Pickel, said the committee will look at the bonds that may be affected by the triggering of the collective action clause in the Greek debt swap deal, which forces investors who did not take part in the voluntary restructuring to take losses as well.

'Clarity' for Investors

"It could be the international governing bonds, which have not been subject to a collective action clause yet. It could be the new bonds that are received in exchange; or it could potentially even be the package. That's something that the determinations committee will consider over the course of the day on Monday," Pickel said.

Geen said the action provides "clarity" to investors, some of whom had criticized the ISDA in the past for not declaring a default on Greece when the country voted in the law introducing the collective action clauses.

"I think people now see once the facts match what the contract says, then we'll declare that to be a credit event," he noted. "We're just really doing … what we always do in accordance with our process."

Andrew Sheets, chief European credit strategist at Morgan Stanley, said the outcome was the best possible for the markets.

"I actually think the alternative, if the swaps hadn't [been] triggered, would actually probably been taken worse by the markets in the sense that it would have thrown a much larger section of the markets into uncertainty over how these instruments trade and how robust they are," Sheets told CNBC.

"It seems that we're moving towards an event that will be reasonably orderly and well flagged," he said.

The new Greek bonds created under the debt swap deal started trading on Monday and the yield curve was inverted, indicating that investors were afraid the country will default on those too.

The yield was more than 19 percent for a bond maturing in 2023 and more than 14 percent on another bond, maturing in 2042.

European stocks were broadly flat in London trading after starting the session lower, while the euro rose against the dollar from previous three-week lows.

Contact Europe: Economy

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