Griechenland - Haircut/Default/CDS

LONDON -(Dow Jones)- Greek debt insurance costs are at a record high  Thursday as investors wait nervously for the outcome of the debt-swap  deal that expires Thursday evening.

Around 0915 GMT, Greece's five-year credit default swap was one  percentage point wider at 77 points upfront, according to data-provider  Markit.

Quoting CDS prices upfront is a convention reserved for particularly risky investments.

This means protection against a Greek default costs $7.7 million at  inception, plus $100,000 a year, to cover $10 million of debt for five  years.

Credit default swaps are derivatives that function like a default  insurance contract for debt. If a borrower defaults, sellers compensate  buyers.

Despite Greece's record high CDS costs, there is general optimism in  the market that the country's debt-swap deal will go through, allowing  it to receive its second bailout package from the European Union and  International Monetary Fund, worth EUR130 billion, and preventing it  from defaulting on its remaining debts.

"The most likely outcome remains that Greece will receive enough  acceptances to move ahead with the deal and trigger the second bailout  package from the EU. They may have to use CACs [collective action  clauses] to ensnare the holdouts, some of whom would be hoping that they  do so, but that will be at their option," said Gary Jenkins, analyst at  Swordfish Research.

EU leaders will hold a conference call on the outcome of the Greek debt restructuring Friday.

Elsewhere, there was very little movement in other euro-zone CDS  spreads. Portugal's CDS was one point tighter at 34 basis points  upfront.

Spain's debt insurance costs were slightly lower. Its five-year CDS was two basis points tighter at 400 basis points.

Italy continues to outperform Spain, Italian CDS spreads tightened by one basis points to 368 basis points.

Germany and France CDS spreads both tightened marginally by one basis  point, trading at 78 basis points and 181 basis points respectively.

- By Sarka Halas, Dow Jones Newswires; +44 (0) 207 842 9236; Sarka.Halasova@dowjones.com

(END) Dow Jones Newswires

March 08, 2012 04:56 ET (09:56 GMT)