Lehman Brothers CDS
ISDA is doing an auction of Lehman bonds today to determine the price at which Lehman default swaps will settle for cash. The initial indications give a recovery value of 9.75% on Lehman Brothers' bonds. That's lower than I think most people expected; it's a lot lower than is usual. (I wouldn't be surprised if Washington Mutual ends up in similar territory, though.)

The final results of the auction will be announced at 2PM eastern time, and most Lehman default swaps will settle shortly after that.

Update: Apparently PIMCO is one of the big writers of protection here. I hope they're good for it. There's been a lot of talk that AIG was writing a lot of credit protection; I haven't heard anything as to whether they currently have a lot of Lehman exposure. If there's a big default today because someone wrote more Lehman protection than they could handle (and still hasn't recognized it), things could in fact get worse. If not, the resolution of this could pacify things somewhat.

Update: The price will be established today, but actual settlement is still primarily two weeks out.

Update: 8.625% recovery value set. CDS writers will need to pay 91³/₈% of par value.
- posted by dWj @ 10:43 AM