Tuesday, February 17, 2009

California CDS Cheap As State Likely To Default

California seems poised for imminent financial collapse and it is anyone's guess how far the impact of a state default could propagate. California CDS offered at 355 seem cheap, especially when one considers that the one year default prob per the spread is 17.7% at a 80% recovery rate and drops to 9% if one assumes 60% recovery. Of course the question is whether the federal govt will bail out Cali, and just how an event of default will be defined for General Obligation securities, although all signs point to a test very soon in the future. Either way, it is very likely the CDS will soon retest recent wides of 455.

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Anonymous said...

how do you purchase CDS' as an individual investor?


Anonymous said...

You can't. Anyway would you trust your counterparty?

structured credit trader said...

good call!