UniCredit looks ahead to standard European contract

UniCredit's research today looks ahead to Monday (22 June), when standard single-name credit default swaps referencing European corporate names will adopt a “standard European contract.” In addition, they will trade with fixed coupon levels of 25 basis points, 100bp, 500bp, and 1000bp. The par spread CDS will no longer be offered.

According to UniCredit analysts, the four coupon-levels will diminsh the size of upfront payments and liquidity requirements, which will make it more attractive for investors to use CDS as investment and hedging instruments.

In contrast to the North American market, modified-modified restructuring will remain a possible credit event in Europe.