The FT has recently done a timely article-on the consequences of the EU‘ ban on the naked CDS.
Investors are buying protection on European banks on the basis that banks and sovereigns are so intimately linked that any increased risk of a sovereign default will increase the value of a bank CDS in a similar way to a sovereign CDS.
“The big downside of the ban is that it is likely to increase borrowing costs for financials,” said Michael Hampden-Turner, Citigroup credit strategist. View full article »
What’s a credit event? It’s a difficult question. Dealbreaker is exercised on this, or more specifically on the issues with CDS protection holders getting paid on some unusual credit-event-like happenings:
- You buy CDS that is supposed to pay off if something goes wrong with the bonds.
- Something goes wrong with the bonds, insofar as they poof into some weird garbage-y thing or assortment of garbage-y things.
View full article »
We all have heard of CDS (Credit Derivative Swap) But, how many of us have the real idea & concept of CDS cleared with us? I guess very few people. So, here we are ready with our today`s blog which will talk about CDS, its basic concept & origin with its structurally enhanced form/product known as CDX-”Credit Derivative Index Tranche” .
Meaning: In finance, a credit derivative refers to any instrument and technique designed to separate and then transfer the credit risk of the underlying loan. It is a securitized derivative whereby the credit risk is transferred to an entity other than the lender. View full article »
In simple terms a CDO is the debt issued by a specially incorporated entity (SPV) to finance the purchase of assets.( CDO also refers to the SPV ). Typically the assets are bonds, loans, mortgages and receivables. Entity holds the assets as collateral and sells packages of cash flows to investors.
CDO has 4 aspects:-
Well it seems like actual credit investing failed so insurance policies were invented to get rid of actual cash flow and collateral analysis.
There was no need to do any research. Just buy a default insurance policy.
The funny part is the banks created and sold default insurance policies to hedge funds and they couldn’t manage their own books. makes sense
That’s why the government needs to shut down the hedge fund View full article »
How can a bank like Lehman go down so fast?
FINANCIAL markets can be punishing and reversal of fortunes can be dramatic. More so, if an institution is overleveraged — when loan and investment books are much, much bigger than its capital. What compounds problems are strange accounting practice and high-risk nature of the loans and investments. There are also disclosure issues: Lehman, in its last conference call with investors, gave no clue View full article »