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I am working with an EM country and I have realized that the longer bond (2033) is trading USD 5 below recovery value (30%). In fact, the country I am working with has untendered debt too, and bond I have mentioned is trading even below untendered. Usually I applied the cumulative default probability to get the theoretical value; according to this metric the bond is expensive at current market prices. Does anyone have a possible explanation for this?????I’ll really appreciate any comment.Enjoy

Where do you get the recovery value from?P

Market usually assumes 30% of RV for this credit, which is consistent with its previous default. Perhaps, investors are expecting to receive a higher haircut if the issuer defaults again. That this makes sense????

QuoteOriginally posted by: MarrietMarket usually assumes 30% of RV for this credit, which is consistent with its previous default. Perhaps, investors are expecting to receive a higher haircut if the issuer defaults again. That this makes sense????Clearly the market is not assuming 30% anymore. Past events do not guarantee similar future events!

Currently this issuer is in a restructuring process and so far the haircut for the untendered debt remains unknown. According to the market prices, investors are pricing a recovery rate of 30%. On the other hand the credit market has been moving the recovery value lower to 25%. Clearly, the market is not extrapolating pass events. Or the untendered debt is too expensive or the tendered too cheap.