One clue lies in the data on the total net notional value of CDS written against Greek bonds. A value of zero would indicate that, overall, the credit default market – where CDS are traded as protection against such an event – was balanced, with an equal value on contracts betting for and against default.
The total net notional CDS on Greek bonds has been on a steady downward slide for the past two years, having peaked in late 2009. In aggregate, the CDS market has gone from being directionally short Greece, to being more neutral. Part of the reason would appear to be that hedge fund managers, who had driven the speculative spike in CDS positions in 2009, began to close their shorts in 2010 and 2011 by either buying Greek bonds, or else writing CDS protection to new, less far-sighted investors who had suddenly woken up to their overexposure to potentially toxic peripheral eurozone debt.
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