Hedge funds buy bank CDS to short Spanish property
Thursday, January 31, 2008 : PermalinkGuardian Unlimited- The cost of insuring Spanish banks’ debt against default has leapt by at least a third this year, as hedge funds use credit derivatives to short Spain’s fragile property market, market participants say.
Jackie Ineke, a banking analyst at Morgan Stanley, told Reuters that hedge funds were "phoning up every day" asking how to short Spanish property and the only effective way to do it was by buying credit protection on Spanish banks.
The trend began last year but appears to be broadening.
Smaller savings banks with exposure to coastal markets such as Caja de Ahorros de Valencia, Castellon, y Alicante (Bancaja) and Caja de Ahorros del Mediterraneo (CAM) have been hit especially hard since the summer.
According to Markit data, 5-year credit default swaps on Bancaja have jumped to more than 200 basis points (bps) from a little over 150 bps at the end of 2007 and less than 20 bps last July.
