Russia default swaps rally, but trigger concerns remain ifre.com - get the latest breaking news, showbiz & celebrity photos, sport news & rumours, viral videos and top stories from ifre.com Daily Mail and Mail on Sunday newspapers.
As the U.S. and allies tighten sanctions on Russia and choke off investor demand for its assets, parts of Wall Street are jumping at the buying opportunity that it's creating.
French Car Rental Firm’s Credit Insurance Woes Send Warning to Speculators By Irene García Pérez | January 21, 2021
A failed attempt to settle debt insurance on a struggling French car-rental company is the latest blow to the $9 trillion market in credit derivatives, but this time the focus is on speculators.
Protection buyers who didn’t hold any of Europcar Mobility Group’s underlying debt were left with nothing, due to a shortage of bonds to settle contracts at the auction on Wednesday.
Flaws in the instruments’ capacity to protect against losses have undermined confidence in the credit derivatives market in recent years. The problem with Europcar, which defaulted on its debt last month, was that bids exceeded available securities, driven both by bondholders that had already entered into a lock-up agreement and by traders that had placed outsized bets on a lucrative swaps payout.
Credit derivatives contracts on struggling car rental company
Europcar proved worthless when they failed to provide any payout to protection holders on Wednesday, raising once again questions about the efficiency of credit-default swaps as well as corporate bond markets more broadly.
The lack of payout on Europcar CDS is highly unusual even in this often bewildering corner of financial markets, not least because the company’s bonds had been trading at knock-down prices just hours before. It meant that bondholders had missed out on a golden opportunity to effectively make free money by selling Europcar debt at well-above market prices in the auction used to determine CDS payouts.