As Barclays Capital analysts observe in a note on Thursday updating on a previous calm take on CDS, exposure is down — and has been for quite some time (emphasis ours):
Since 5 February, net CDS exposure on Portugal, Greece and Ireland has been coming slightly down (-2%, -8% and -13%, respectively). Greek and Irish net amounts are back to the levels of Q3 09 – it is worth noting that, in fact, the peak in net exposure on Greece was reached in late November, and since then had been relatively stable.
So much, then, for European politicians’ winter/spring of discontent over the alleged CDS plague on Greece. And it adds to the sceptical view Fitch took this week on when (if ever) the tail of CDS was in a position to wag Greece’s dog.
As BarCap’s analysts continue, volume has dipped this year as well:
Looking at the number of CDS contracts traded (which capture both new positions, as well as closing of positions), the peak seems to have been in February in all markets, with a substantial drop in activity for most of March…
…This, combined with a drop in net CDS exposure and basis tightening, suggests a number of positions were closed in late February/March.
Just when the great CDS debate over Greece was reaching fever pitch, in other words. (Indeed, Wolfgang Münchau and Sam Jones furiously debated the merits of naked CDS on the FT’s web pages at the time).
The BarCap conclusion is thus unsurprising:
All in all, the focus from regulators and politicians on the sovereign CDS market (without any effective ban) seems to have, at least temporarily, led to a decline in activity and a reduction in open positions in the sovereign CDS market. It remains to be seen whether this will continue.
Well, we might able to answer that last point. As Reuters reported on Thursday, Michel Barnier, the European Commission’s internal markets head, could issue new proposals on sovereign CDS by autumn.
And we don’t think it was an April Fool. Let the debate roll on…