Since Greece technically defaulted over two weeks ago, yields on its bonds have risen sharply while insurance for Greek bonds has virtually disappeared, reflecting a lack of bond buyers and reluctance by loss-wary banks to write new protection.
"...There are a number of reasons why buyers of insurance on Greek bonds, also known as credit default swaps, or CDSs, are scarce and banks are reluctant to sell them on Greek sovereign debt. A CDS is a derivative that functions like an insurance contract for a debt default. If a borrower defaults, sellers compensate buyers.
"For one thing, Greece's default hasn't produced concrete results, but the recovery appears to be historically weak. The recovery rate at the recent Greek bond auction was substantially lower than the average for sovereign defaults from 1983 to 2010, according to Moody's Investors Service. While Greece's recovery rate was 21.5 percent, the average value-weighted rate during that 28-year period was 31 percent. That augurs for another default..."