CVA desks to keep buying sovereign CDSs – even if they never pay out

Man with umbrella under stormy skies

The Basel III credit value adjustment (CVA) capital charge means demand for sovereign credit default swaps (CDS) will continue – and possibly grow – even if attempts to avoid triggering contracts on Greece undermine the market's value as a hedge of default risk, dealers say.

A voluntary 50% haircut of Greek bonds outlined as part of the latest eurozone deal is unlikely to trigger payments on existing CDS contracts referencing Greece, according to the International Swaps and Derivatives

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