01
Mar
10

Bond Vigilantes

Ese es el nombre de un blog britanico, que se catacteriza por tener posts muy explicativos. Los siguientes dos son un ejemplo de ello.

What is the risk free rate anyway?

(…)

The complete absence of risk has always been more observable in theory than in practice but in the last month or so, swap rates have fallen below gilt yields – can it be right that the lowest interest rate in the market is lower than the traditional risk free rate?  Are government bonds still the right instrument with which to observe the risk free rate?

(…)

Sovereign CDS Q&A

(…)

Q:  Can I estimate probabilities of sovereign default from CDS prices?

A:  Yes, with the cavaet that like all financial instruments, prices are driven by fear and greed and may not reflect the fundamentals.   You need to have an assumption for a recovery rate – let’s use 39% as the average.  So if Greek 5 year CDS is trading at 400 bps per year, this means that in any one year you anticipate a pre-default spread of (4% x 100/(100-39)) = 6.56%, which given markets are efficient (!) must equate with the expected one year default rate.  So on the back of an envelope, ignoring the impact of compounding and the expected timing of a default, the cumulative expected default rate for Greece over the next 5 years is 5 x 6.56%, or over 30%.

(…)

Advertisements

0 Responses to “Bond Vigilantes”



  1. Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


Fun & Finance

Vimeo

Fun & Finance Rollover

Contacto

informes@qfclub.com.ar
"It is hard to be finite upon an infinite subject, and all subjects are infinite." Herman Melville

Powered by

March 2010
M T W T F S S
« Feb   Apr »
1234567
891011121314
15161718192021
22232425262728
293031  

Categorias

Archivo

Ingrese su dirección de email para suscribirse a este blog y recibir las notificaciones de nuevos posts via email

Join 35 other followers

Web Analytics Clicky

%d bloggers like this: