FT Alphaville " Preliminary auction results The Greece CDS auction is underway today over at Credit Fixings, viewable here. The auction is for $3.2bn of CDS plus or minus a few hundreds of millions here or there, due to the additional single-name CDS trades that rolled out of the Markit iTraxx SovX Western Europe indices on Tuesday and potentially not all of the contracts triggering. Stage one of the auction was released at 11:00am London time, and thus far is looking in line with expectations: With a net open interest to sell, this means there is excess supply - banks and investors are more interested in using the auction to offload Greek bonds than to snap them up. That was also expected. The Initial Market Midpoint of 21.75 sets the stage for the next part of the auction, where limit orders are placed by participating dealers to buy the net open interest, and at €291.6m, it's a fair amount to fill. And also RBS submitted marks that were slightly off-market compared to the rest of the dealers, hence the "adjustment amount" (it's a polite way of saying "fine levied that motivates dealers to submit good marks). It's a pretty small amount compared to other auctions though. Here's a bit more colour on bonds that are likely to be used in the auction, as well as price expectations, from credit über geek Michael Hampden-Turner at Citi from a note issued on Friday: Bonds with high prices are almost certain not to be delivered, assuming investors are rational. These include international bonds and Hellenic Railway Bonds. The auction will more likely consist of bonds with prices less than or equal to the modal price, which in this case is driven by the new 30-year bonds which have just replaced the bulk of the domestic-law debt. The new bonds have a price range from 23-27 cents. Therefore, they should dominate the auction, with investors only slightly concerned that there is a risk of getting a cheaper asset. In sum, we therefore think the Final Price will reflect the value of the new bonds, i.e. in the range 22-25 cents, making the CDS payout 75-78%. For FT Alphaville's full cheatsheet to follow the auction with, click here. The final results will be out at 3:30pm. Related links: [Credit event auctions] Why do they exist?; A necessary condition for growth; Mechanics; Greece CDS payout cheatsheet - FT Alphaville Ok guys, hands up who booked the weird Greece CDS trades... - FT Alphaville This entry was posted by Lisa Pollack on Monday, March 19th, 2012 at 11:17 and is filed under Capital markets. Tagged with CDS, sovereign cds.