Market ignores senior bail-in risk, finds Morgan Stanley
Market implied recovery rates for senior financial bonds in Europe have changed little in recent years despite recent talk of senior bondholders taking losses
Very interesting study - it prompts me to raise two thoughts. First, to understand the impact of bail-in risk on BONDS, it's better to study bond price movements rather than CDS. There's still too much reason in this market to believe that CDS and bonds don't track each other ideally. Second, it seems naive to "[fix] the recovery rate for sub CDS". If senior bail-in risk rises such that both sub and senior CDS levels widen, it's reasonable to think that sub recovery rate will head down to zero. Allowing this sub recovery rate to decline may change the conclusion.
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Comment by: Anonymous. Posted 11 years ago [2012-08-17 00:43:18]