...are on a collision course with the bond market as they seek to resolve the Greek debt crisis without triggering payouts under credit- default swap insurance contracts.
European Central Bank chiefs are determined to ensure any Greek debt restructuring won't be deemed a credit event enabling buyers of protection to seek compensation from swaps sellers. It costs $2 million annually to insure against Greek default for five years, with Portuguese and Irish swaps also seeing all-time high prices.
A debt restructuring that doesn't trigger swaps would be more damaging to the market as it would devalue contracts, according to analysts at JPMorgan Chase & Co. and Bank of America Merrill Lynch. Such a move would leave banks with unprotected, or unhedged, holdings, forcing them to sell bonds and ultimately drive sovereign borrowing costs higher.
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