10_19_2010 Sovereign Debt and CDS

10_19_2010 Sovereign Debt and CDS - FIXED INCOME SECURITIES...

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1 NAME OF INITIATIVE OR GROUP FIXED INCOME SECURITIES Fall 2010 – FNCE 235/725 Prof. Stephan Dieckmann OCTOBER 19, 2010 CURRENT ISSUES - SOVEREIGN DEBT and CDS
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2 Current Issues One of the most striking features of this credit crunch has been the relative widening in sovereign spreads of advanced economies. Following the collapse of Lehman Brothers, sovereign spreads widened to a median level of150bp from extremely tight levels, realizing a multi-fold increase. • The cost of insuring Greek sovereign debt against default hit a record high as concerns over the country's public finances continue to weigh on sentiment.[. ..] It costs around EUR849,000 a year to insure a notional EUR10 million of Greek sovereign debt against default for five years. Source: Wall Street Journal, Aug 18, 2010. • What is a sovereign bond? • What is a CDS contract? • What is a Quanto CDS?
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3 Sovereign Bond • A sovereign bond is a debt contract issued by a sovereign country. • The borrowing country may default on its contractual obligations without the lender having any recourse to the assets.
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This note was uploaded on 03/27/2012 for the course FNCE 235 taught by Professor Roussanov during the Spring '09 term at UPenn.

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10_19_2010 Sovereign Debt and CDS - FIXED INCOME SECURITIES...

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