$3,000 to insure ten million in Ukrainian bonds?

[jasonc]

http://www.usnews.com/articles/business/economy/2009/04/17/10-countries-in-deep-trouble.htm?PageNr=2

Just saw in the above article it says that a year ago the cost to insure 10 million in Ukrainian government bonds was $3,000 and has now spiked up to 3.9 million. Is that $3,000 figure honestly accurate? If so it seems very low for what I would view the risk of government default in countries like this, especially for 5 year terms.

 

[psytrade]

It could be true....

Same thing applies to insuring corporate bonds against default.

Thats why Lahde, Goldman Sachs, and Paulson & Co. came out of the credit crisis looking so good. - They bought credit default risk protection for dirt cheap.

 

[Martinghoul]

Quote from jasonc:

http://www.usnews.com/articles/business/economy/2009/04/17/10-countries-in-deep-trouble.htm?PageNr=2

Just saw in the above article it says that a year ago the cost to insure 10 million in Ukrainian government bonds was $3,000 and has now spiked up to 3.9 million. Is that $3,000 figure honestly accurate? If so it seems very low for what I would view the risk of government default in countries like this, especially for 5 year terms.

Well, that's what excess liquidity, mis-pricing of risk and all of these pre-credit crunch bad things are all about... Still, while it will depend on the bond maturity, $3000 figure looks too low.

From what I can see (attached chart is 5Y UKR Sov CDS). it was more like $14,000

 

[makloda]

How does a default event in Ukrainian government debt get settled?

In car loads of vodka, AK47 guns and women?

 

[ttbodnar]

I wish if that was the case I would have been all in on Ukranian bonds years ago keeping some for myself and selling the rest on the black market - I would have been way ahead by now

 

[jasonc]

Quote from Martinghoul:

Well, that's what excess liquidity, mis-pricing of risk and all of these pre-credit crunch bad things are all about... Still, while it will depend on the bond maturity, $3000 figure looks too low.

From what I can see (attached chart is 5Y UKR Sov CDS). it was more like $14,000

Wow that is ridiculous and even $14,000 seems incredibly low. I dont understand how that ever looked like a reasonable amount considering the uncertainty that can appear even 5 years out.

 

[Martinghoul]

Quote from jasonc:

Wow that is ridiculous and even $14,000 seems incredibly low. I dont understand how that ever looked like a reasonable amount considering the uncertainty that can appear even 5 years out.

Sorry, jason, I just realized that I can't do basic arithmetic...

Simplistically, it's just 1.4% * 10mil = $140k, rather than 14k. DUH! It's still low, obviously.

These CDS contracts are USD-denominated, so they settle in cold, not-so-hard American dollars. Still, I like makloda's idea better...

 

[Cygnus Atratus]

Quote from makloda:

How does a default event in Ukrainian government debt get settled?

In car loads of vodka, AK47 guns and women?

Maybe cabbages as well

Too funny