Dealers predict CVA-CDS loop will create sovereign volatility

A recipe for disaster?

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Following more than a year of wrangling, European parliamentarians managed to persuade the Polish presidency of the European Union to support tough restrictions on so-called ‘naked’ sovereign credit default swaps (CDSs) – the buying of protection on government debt as an outright short position. The deal, announced on October 18, was hailed as a great victory. Since Germany imposed a unilateral ban on naked sovereign CDSs in May 2010, the market had been seen by many as a way for speculators to

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