Credit-Default Swaps as Hedge Threatened by Greek Debt Plan

Confidence in the credit-default swaps market may be undermined by the European Union’s plan to resolve the euro region’s sovereign debt crisis.

The EU said yesterday that it reached an agreement where banks will write down their holdings of Greek bonds by 50 percent. The International Swaps and Derivatives Association’s chief lawyer later said because the deal agreed to by the Institute of International Finance is considered voluntary, it won’t require firms that sold a net total of $3.7 billion of credit protection on Greece to pay buyers of the swaps.