A $2.2 Trillion Asset Manager's big bet on Russia. Asset manager PIMCO has $1bn in credit default swap exposure - essentially betting that Russia will not default. Not only that, they have doubled down and also have $1.5bn in Russian sovereign debt exposure. What does that mean? Going long a CDS product provides investors with insurance against default. Whereas selling a CDS (as PIMCO are) is effectively them going long credit risk and allows them to collect a premium if Russia doesn't default. It's a big bet as Russia's CDS is up more than 400% over the last 6 months. Risky. #markets #credit #markets #russiaukraine
Got a feeling they could make money even if Russia does default - I don’t reckon CDS pays out if the cause of default is sanctions
Eddie Donmez The regulator should ask the fund managers, hedge funds etc to disclose their Russian exposure so that we don't get a financial contagion if there is an "adverse" event! A kinda stress test is needed immediately to avoid a repeat of 2008 GFC.
In “normal times” higher oil price should help to reduce Russia's sovereign credit risk – but we are not in “normal times”… https://www.tandfonline.com/doi/abs/10.1080/14697688.2016.1211801
Although the exposure is quite small when compared to trillion dollar investment but pimco makes a big bet on risky assets to grab a piece of pie, let's see how things turnout. From a macro perspective if Russia falls the west would move in deep inflation crises coz of that they are quite cautious with every move..
Must be supported by realistic credit risk assessment, free of sentimental noise. Increased volume is by no mean barometer to truly reflect the intensified probability of default, disregard the prevailing emotions.As long as probability remains in lower thresholds, premium earned on CDS expected to be > expected loss from default of underlying debts.
Would love to see how this plays out.
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