The Independent – The financial fall-out in the vast, opaque credit default swaps market caused by the collapse of Lehman Brothers could be smaller than originally feared, analysts say. <\/p>\n
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Optimism was rising yesterday that the unwinding of insurance contracts on Lehman debt might involve the transfer of barely $6bn, and that the settlement next week can be completed without a major player failing to pay. <\/p>\n
The concern had been that banks and hedge funds who promised to compensate trading partners for losses on Lehman bonds would not have the money to do so, triggering a chain reaction of losses through the financial system. <\/p>\n
Although Lehman bonds were valued in a closely-watched auction last Friday at just 8.625 cents on the dollar, and sellers of credit default swaps will have to pay out a higher-than-expected 91.375 cents on the dollar, the great majority of players are both buyers and sellers of credit default swaps – meaning they can net off their exposure. <\/p>\n