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CVA desks to keep buying sovereign CDSs – even if they never pay out
Even if CDS contracts are not triggered in Greek restructuring, Basel III's CVA charge ensures the market will live on - but episode raises fresh questions about design of capital framework, dealers say
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The Basel III credit value adjustment (CVA) capital charge means demand for sovereign credit default swaps (CDS) will continue – and possibly grow – even if attempts to avoid triggering contracts on Greece undermine the market's value as a hedge of default risk, dealers say.
A voluntary 50% haircut of Greek bonds outlined as part of the latest eurozone deal is unlikely to trigger payments on existing CDS contracts referencing Greece, according to the International Swaps and Derivatives
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