UPDATE: Cost Of Insuring Greek Highest Level Since May 7-CMA

23rd Jun 2010 15:49

(Updates prices, adds comment, background.) By Art Patnaude and Michael Wilson Of DOW JONES NEWSWIRES LONDON (Dow Jones)--The cost of insuring Greek sovereign debt rose sharply Wednesday amid low levels of liquidity and widening in the country's government bond spread. Greece's five-year credit default swap pushed over the 900 basis points to hit its highest level since May 7, according to CMA DataVision, which was just before the European Union and the International Monetary Fund announced its aid package for Europe. The country's five-year CDS widened 84 basis points to 934 basis points, meaning the annual cost of insuring EUR10 million of Greek government bonds for five years rose EUR84,000 to EUR934,000, according to CMA DataVision. Several analysts said the credit default swap market was seeing low levels of liquidity, with the market largely being driven by the movement in government bond spreads. The spread between Greek 10-year government bonds and the benchmark German bund also widened to 789.5 basis points from 755 basis points late Tuesday and from 693 basis points a week ago. "The cash market is leading the CDS market," said one trader, adding that some investors were selling bonds because they would be excluded from major bond indexes after Moody's Investors Service cut Greece's sovereign rating to junk earlier this month. Dow Jones Newswires reported June 15 that 34 Greek government bonds, worth $252 billion, would be excluded from four of Barclays Capital's bond indexes from July 1 following the downgrade. Citigroup Inc. also said that the bonds would be dropped from its World Global Bond Index, another closely-watched benchmark. A second trader said there has been some profit-taking following the rally in sovereign bond markets in the last few days. CDS are tradable, over-the-counter derivatives that function like a default insurance contract for debt. If a borrower defaults, the protection buyer is paid compensation by the protection seller. Swap buyers may be protecting investments they own or simply making bearish bets against companies or countries. -By Art Patnaude and Michael Wilson, Dow Jones Newswires; +44 (0) 207 842 9259; [email protected] (Mark Brown in London contributed to this item.) (END) Dow Jones Newswires June 23, 2010 10:49 ET (14:49 GMT)