CDS Market: Did Fannie and Freddie Default?

Apparently, the answer is yes.

Thirteen “major” dealers of credit-default swaps agreed “unanimously” that the rescue constitutes a credit event triggering payment or delivery of the companies’ bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said. –Bloomberg News (hat tip Market Movers)

This conference call is in one hour’s time. So let’s see what the result is. If this is a credit event, it has the potential to trigger some major, major losses in the CDS market.

“This is a big deal,” said Sarah Percy-Dove, head of credit research at Colonial First State Global Asset Management in Sydney. “The market is not experienced at settling a credit event for a name of this size, so it is a bit of an unknown.”

A settlement likely would be the largest in the market’s decade-long history. Credit-default swaps on Fannie and Freddie have been among the most actively traded the past few months, according to reports from broker GFI Group Inc. Both companies also are among 125 companies in the benchmark Markit CDX North America Investment Grade Index, the most actively traded contract in credit markets, which investors use to speculate on corporate creditworthiness or to hedge against losses.
Bloomberg News

Also see all my previous posts under the tag GSE, especially the following related posts:

Freddie and Fannie taken over by U.S. government
Gateway Financial and Midwest Banc have one-third of capital in Fannie and Freddie Preferreds
Freddie and Fannie are getting nationalized
Quote of the day: 27 Aug 2008 – China
Senator Bunning blasts Bernanke at Senate hearing
Moody’s Cuts GSE Preferred Stock Ratings
Fannie, Freddie to get $15 Billion from U.S. government
Fannie and Freddie: Washington Post articles back to 2005
Question: How is Fannie Mae a AAA company?

Fannie, Freddie Credit-Default Swaps May Be Settled – Bloomberg News

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