Comment by: Anonymous. Posted 11 years ago [2012-08-17 00:43:18]

Insightful article and insightful comments below. I agree that comments that CDS and bonds are different (in that bail ins can and have been structured so no CDS are triggered, but sub debt holders still take severe haircuts "voluntarily"). Comments about Spain and Italy having low implied recovery rates ring true as if they did need a bail-out it is most likely to come from foreign governments not domestic ones who are more inclined to support senior debt holders as the UK government has done in the past

Comment by: Anonymous. Posted 11 years ago [2012-07-30 23:45:57]

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.