Greek CDS at record levels , someone may want to do some hard restructuring?
forexlive.com
Sino-Forest holders of CDS laughing all the way to the bank <g
business.financialpost.com
The cost of insurance on Sino-Forest C0rp. bonds is going up. Again.
.John Greenwood Jun 10, 2011 – 7:18 PM ET
Credit default swap spreads on five-year Sino debt soared to 2,794 basis points by the close of Friday, up more than 40% from the previous day, according to Markit, a London-based financial information firm. Since the middle of last week the spread has more than quadrupled.
In plain English that means that to ensure $10-million of Sino bonds against default on Friday, you would pay $2.794-million, compared to $1.994-million on Thursday.
The move comes about a week after a New York short seller released a sensational report on the TSX-listed forest products company, accusing it putting out false financial statements. Sino has denied the allegations.
Investors reacted aggressively. By the end of June 3, the day after the release, the shares closed at $5.23, down more than 70% from Wednesday’s close. They’ve been bumping around that same range ever since.
Interestingly, the credit default swaps have been moving differently. As you would expect, they immediately jumped in value in the aftermath of the report. But over the last few days they kept on moving up even as the share price remained stuck at around $5.
As a rule, markets are driven by news. So here’s the question: What is it that the debt markets know that the equity markets don’t?
The Hong Kong-based company has more than $2-billion of debt outstanding, most of it in the hands of Canadian and U.S. institutions. (wow) While CDS are designed as a tool for bond investors to protect against the risk of default, they are also used by players who don’t hold the bonds as a way to speculate.
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