Friday, August 1, 2014
Argentine default - is there a contagion
ISDA has voted that there has been a credit event with Argentine bonds which will trigger credit default swap provisions. This is the second time Argentina has default since 2000. Should this lead to a contagion in other markets? The simple answer is no, The events associated with this default have been ongoing and unique to Argentina, but the current sell-off in high yield suggests that credit investors are waking up to the risks from just grabbing for yield. Know your borrower.
The contagion is like the zebra herd that may sense a lion coming closer. The pack starts moving perhaps on a twig snapping. Once the herd is moving is hard to say where it is headed.