Last year, Greece saw its privately held debt cut by more than half in a bond swap.
That same year, Argentina offered its creditors a bond swap, in which they would suffer a 65% loss.
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U.S. stock futures are broadly lower heading into the open, as Wall Street frets over European dealings for a Greek bond-swap deal while Iran reiterated its threat to block the Strait of Hormuz.
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For one thing, it is hard to know how much companies have in fact lengthened the maturity of their debts because the interest-rate swap market allows them to swap those fixed bond payments into cheaper floating debt, a popular strategy in the investment-grade market.
Either way--with a swap or a margined bond trade--you pocket the spread, unless and until the corporate bond gets into trouble, at which point you're sitting on a painful capital loss.
Put another way, a poor quality bank bond that no one wants because the bank is in trouble is suddenly high quality debt if the Fed is prepared to swap it for a Treasury bond.
That's because selling a credit swap is equivalent to buying the corporate bond on margin.
If the government makes the right rules, we can combine them, much like a credit-default swap if done correctly comes with a bond.
Credit default swap spreads have widened out to record levels this week, while Italian and Spanish bond yields have risen, as worries are keener that the EU debt problems could morph into a debt contagion in Europe or beyond.
While the municipal bond market is so frothy and has bid up all prices, sell out your weak issues and swap into strong credits.
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