An agreement on a sovereign debt write-down certainly isn't welcome news for traders sitting on a sovereign bond desk. As the banks and EU agree to write down 50 percent of Greek bond debt, the market is taking a long and hard look at just what will come next. The International Swaps and Derivatives Association (ISDA) is taking a wait and see approach, noting that, for the moment, the event isn't triggering a payout.
According to John Raymond, senior analyst for CreditSights, "The authorities are keen to avoid this being a trigger event. I suspect the current situation won't be the death of the market. But it's likely to make some users think again." The bigger problem down the road could come if there's a follow-on event. For now, the industry is waiting to see how the ISDA will continue to respond to the situation and if and when they might call this a recognized default.
Luckily, says Raymond, sovereign debt isn't necessarily a huge market for the banks. But the opposite may be true for brokers and smaller market makers.
After losing half its market value from its holdings in European sovereign debt, Fitch Ratings cut the credit rating of MF Global to BB+. Earlier in the week, MF Global announced its largest quarterly loss ever. Reports are now swirling that MF Global is in the market to sell off its future's arm.
As the situation develops, it's not unlikely that layoffs and a hiring freeze at MF Global and others like it might just be down the road.
Traders, analysts and ancillary staffers on the sovereign bond desks take heed. Counterparties and investors behind the scenes, like the hedge funds behind MF Global, are sure to be hurt as well.