Tags: EU | EU | Sovereign | Debt | Swaps

EU Weighing Regulation for Debt Speculators

Wednesday, 03 Mar 2010 10:31 AM


The European Commission said Wednesday that it will call in market regulators and banks to discuss possible problems with the market for credit default swaps on sovereign debt.

The swaps are a form of insurance against a borrower defaulting on debt — and the market for them has swelled in recent weeks as traders weigh up the risk that Greece might not be able to repay its massive debt.

EU press officer Carmel Dunne said in an e-mailed statement that EU officials were looking at the issue closely and would shortly call a meeting of regulators, supervisors and the industry to discuss it.

"We need to know better who does what, to better understand this market, including interactions with sovereign debt," she said. "We need to decide whether there are inherent problems with the CDS market."

BNP Paribas analyst Hans Redeker said spreads on sovereign bonds and credit default swaps have now collapsed, blaming "hedge funds fearing Europe imposing regulatory measures on CDS spreads."

The head of euro zone finance ministers, Luxembourg Prime Minister Jean-Claude Juncker, told the German daily Handelsblatt on Monday that the region had "torture instruments in the cellar and we will show them if it's necessary" to tackle speculators.

The Wall Street Journal reported Wednesday that the U.S. Department of Justice is investigating whether hedge funds banded together to drive down the value of the euro against the U.S. dollar. Regulators told the funds to keep documents related to euro currency trades.

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