Greek Debt Wrangle May Pull Default Trigger

Opposition to payouts on Greek credit-default swaps from European Union policy makers is softening as disputes over a voluntary debt exchange threaten to push the nation into default.

Any agreement between the Greek government and the Washington-based Institute of International Finance on debt write downs will only bind 50 percent of investors in the 206 billion euros ($270 billion) of notes being negotiated, Barclay’s Capital estimates.

Hedge funds may resist a deal, seeking to get paid in full or compensated from insurance contracts.

Greece must repay 14.5 billion euros of bonds in March and an agreement that triggers as much as $3.2 billion of default insurance may be necessary unless all bondholders approve, said Marco Buti, head of the European Commission’s economics division.

EU Economic and Monetary Affairs Commissioner Olli Rehn said today in Davos that a deal is “very close.”
“Politicians seem less concerned than before about CDS triggers,” said Michael Hampden-Turner, a credit strategist at Citigroup Inc. in London.

“Having a payout on Greek CDS is probably better than the alternative: a loss in market faith of the product’s ability to provide a hedge against sovereign risk.”

From: Bloomberg