Working together on the CPDO dream

In the prodigiously long and detailed judgement from Australia’s Federal Court on the CPDO affair, there is a story jumping out from behind the complexity of the product itself. It’s about the key role played by former Standard & Poor’s employees who had left the rating agency to go to banks to help structure these products. Read more

League table tantrums, Hong Kong style

The issue of investment bank league-table placings remain as thorny as ever. The $6bn sale by AIG of a stake in AIA has led to a minor outbreak of hostilities among the hard-pressed and highly competitive ECM teams of Hong Kong this week.

A handful of “passive” bookrunners (not their own nomenclature) demanded a stewards enquiry into supposed shennanigans over the placing of the 9-member bookrunner field. Read more

What Japan’s earthquake could mean for reinsurers – part two

A guest post in two parts by Paul J. Davies, the FT’s insurance correspondent. This is part two.

So, to the really interesting question, how long will any upswing last and what might it look like? Here’s a chart from Guy Carpenter, Marsh’s reinsurance arm, that shows the impact of previous events on global catastrophe reinsurance rates. It is indexed and based on 100 at 1990: Read more

What Japan’s earthquake could mean for reinsurers – part one

A guest post in two parts by Paul J. Davies, the FT’s insurance correspondent. This is part one.

There are two big questions for reinsurers following the Japan quake. Number one: will it put a floor under the weak pricing for catastrophe risk of recent years and even lead to sharp increases? Number two, if there is a market turn, how long will it last? Read more

Which governments are really at risk of bankruptcy?

Everyone knows who are the sick men of Europe, right? Just look at the CDS markets to see which countries have the riskiest debt profiles: Greece wins hands down followed by Ireland some way behind.

But CDS traders might be systematically underestimating the riskiness of some of the traditionally more fiscally heavy-weight nations, especially dear ‘Old Blighty’, according to a fascinating presentation given by the head of research at Natixis, Patrick Artus, at a conference in Paris yesterday. Read more

CDS update: US banks worsen

The cost of protecting US banks against default rose sharply on Tuesday afternoon UK time as investors in both equity and credit markets showed renewed signs of skittishness over the durability of bank earnings and over the upcoming results of the US “stress tests”.

Bank of America and Citigroup - both of which reported better than expected earnings in the past week – each saw their cost of protection leap sharply ahead of the opening bell of the New York Stock Exchange. BoA was 30 basis points wider at 305bp, according to brokers Pheonix Partners, while Citi was 50bp wider at 635bp. Read more

CDS report: Rally gathering pace

European credit markets opened stronger once more on Thursday extending what has become a fairly consistent rally since the start of April for investment grade corporate debt especially.

Increasing numbers of analysts are coming out in favour of taking on greater risk in credit investment at the opening of the second quarter, though even some of the most bullish warn that there will still be further turmoil to come for the world’s economies. Read more

CDS report: UK financials fail to find support

Excitement over news that Barclays might not need government help and over the junior debt exchange offers from Lloyds and RBS failed to help UK banks and insurers in the European credit markets on Friday even as some of their continental counterparts saw muuchh more positive moves.

The cost of protecting Barclays and Bank of Scotland (now part of Lloyds) senior bonds against default rose by about 1 basis point to 193.75bp and 184.5bp respectively, while RBS’s cost of protection was 1.65bp higher at 191.5bp, meaning it costs €191,500 per year to insure €10m of RBS senior bonds against default over five years. Read more

CDS report: Buy-backs boost sub debt

The cost of protecting junior bank bonds against default had a rare bout of better sentiment on Thursday after Lloyds Group added to the growing series of tender offers that are offering the most desperate investors an escape route while adding a marginal bid to the market.

The price of insurance against default on the iTraxx index of sub-financial debt dropped by 7 basis points Thursday morning to 293bp after Wednesday’s exchange offer from Lloyds Group that gives investors in the lower tier 2 bonds of Lloyds TSB, HBOS and Bank of Scotland the chance to swap their holdings, which are trading at deeply discounted levels, for new senior debt. Read more

CDS report: weaker once more

European credit markets weakened again on Wednesday after the previous days improvements as markets generally saw the glow added by Tim Geithner’s public-private investment programme fade more rapidly than even the cynics had expected.

The main iTraxx Europe list of investment grade companies rose 7.20 basis points to 168.95bp by mid-morning, according to data from Markit Group, meaning it now costs €168,950 annually to insure €10m of bonds in the index against default. The iTraxx Crossover list of mainly junk-rated debt was 14.23bp higher at 918.63bp. Read more

CDS report: Pressure eases on insurers, carmakers

The European credit markets started the week on strong footing and consolidated on the rally that began last Wednesday as the insurers and carmakers especially among the companies that had led investment grade market wider saw much better performance.

The main iTraxx Europe index of investment grade companies was 11.6 basis points tighter Monday morning at 182.8bp, according to Markit Group, meaning it costs €182,800 per year to insure €10m worth of the index over five years. The cost of protection on the index has now dropped by about 25bp, or €25,000 annually, since its recent peak of more than 207bp last Wednesday. Read more

CDS report: Better tone no help to insurers

European credit markets saw a strong decline in the cost of protecting many companies against default on Friday as the week’s rally in equity markets brought a bout of optimism back to debt investors too, although some of Europe’s biggest insurers continued to suffer in spite of improvements in their stock prices.

BMW led the credit market tighter in spite of news that European car sales dropped 18 per cent in February. Its credit default swaps were 17.5 basis points lower at 397.5bp, which means it costs €17,500 less per year to insure €10m of BMW bonds over five years. VW was close behind, dropping 16.1bp to 274.0bp, while Valeo, the parts maker, Renault and Daimler were all much better. Read more

CDS report: Insurers lead market wider

Losses from Standard Life and Aegon, the UK and Dutch insurers, cast a pall over the sector in credit markets Thursday morning, leading to significant increases in the cost of protecting insurance and reinsurance company debt against default across Europe.

Insurance groups accounted for eight of the 15 companies with the biggest increases in their cost of protection and were significant in dragging the main iTraxx Europe investment grade index 10.5 basis points higher to be back above 200bp, according to Markit Group, which means it now costs €202,875 per year to protect €10m worth of debt for five years. Read more

CDS report: Credit follows stock market lead

European credit markets took up the happier tone of stock markets on Wednesday after two days of ferocious risk disposal that saw the iTraxx Crossover list of mostly junk rated names hit an all-time high and the main investment grade index hit its highest since mid-December.

Banks led the fall in the cost of protecting corporate debt against on Wednesday, making up ten of the twenty best performing names in the market by late morning. BNP Paribas was most improved, with the spread on its credit default swaps tightening by 12.5 basis points to 92.75bp, but was closely followed by Spain’s Banco Espirito Santo and Santander, UniCredit of Italy and France’s Credit Agricole, which all saw their costs of protection cut by more than 5 per cent, according to data from Markit Group. Read more

Fred Van Shred?

Amsterdam: the most civilised city in the world, some might say. Famously permissive (although no tobacco allowed in those reefers these days) and offering a tight social safety net for the disadvantaged. What better place for a man unwelcome in his home nation and potentially about to lose his main source of income to rest up for a while…?

British banking’s lead UK pantomime villian, Sir Fred Goodwin, might consider such a move. After all, the Dutch have plenty of reasons to welcome him with open arms. Read more

CDS report: RBS leads rally

Royal Bank of Scotland led a strong rally in European credit markets Thursday morning after the UK government announced its scheme to relieve the stricken bank of some of its worst assets in a deal which one analyst said was “as good as it gets for RBS”.

The bank’s cost of protection on its senior debt dropped by 27.7 basis points to 167.5bp, according to Markit Group – meaning its costs €27,700 less per year to insure €10m of the banks senior bonds over five years. Read more

The lot of the Irish

Who’d lend to Ireland? The Republic priced a 3-year €4bn deal Wednesday at 170bp over mid-swaps – pretty costly stuff! This spread is almost five-times that of Barclays’ UK guaranteed 3-yr £3bn deal this week, which priced at 35bp over mid-swaps and Roche’s huge €5.25bn 4-yr deal at 225bp over….

So, Ireland marginally less risky than an acquisitive Swiss pharma group… Read more

CDS report: Banks under pressure

European banks remained under heavy pressure in credit markets on Monday as general concerns about financial weakness lingered and a further round of fears over the potential fates of junior bank bonds was awoken by UK government action on Friday.

Carmarkers and insurers also suffered a further bout of selling on Monday morning, while the broader credit markets were mixed-to-better after the battering taken on Friday when all markets were spooked by renewed fears over the futures of Citigroup and Bank of America in the US. Read more

CDS report: Emerging exposures hurt banks

Concerns over exposure to eastern Europe and other developing markets weighed on banks in both the credit and stock markets on Tuesday after a report from Moody’s, the rating agency, which added to the growing consensus that such countries would suffer more in the global economic downturn.

Unicredit was the worst hit in morning trade. Its cost of protection jumped 33.55 basis points to 205bp, a new record, according to data from Markit Group, while its stock dropped 5.2 per cent to €1.14. Other banks such as  Santander and BBVA of Spain, which were also down in the European stock market and were both about 10bp wider in the credit default swap market. Read more

CDS report: Bleak mood hits credit

European credit markets saw sharp rises in the cost of protecting bonds against default on Monday as equities also fell and investors digested the news that Barclays had had its credit rating cut by Moody’s.

Banks were mixed performers, with Credit Agricole, RBS, Santander and BBBVA all seeing their cost of protection drop in early trade, while UBS, Deutsche Bank and HBOS, were among those whose cost of protection rose by a handful of basis points. Read more

CDS report: RWE hit on Essent talk

RWE was the worst performer in broadly positive credit derivatives markets Monday morning, as the cost of protecting the German utility’s debt against default rose strongly on talk that it would announce a €10bn deal for Essent later in the day.

The company’s cost of protection jumped by 10 basis points to 81.5bp even as the main iTraxx Europe list of investment grade companies, of which it is a member, shaved off just less than 1bp to 155.4bp, meaning it now costs €155,400 per year to insure €10m of the index over five years, according to data from Markit Group. Read more

Glencore: time to come clean

OK, OK. Time to ‘fess up to my bad Glencore CDS call. Think I said below 1,000 basis points by Christmas. Well, after the first full day of the first proper week of the new year, it’s hovering at just above the 2,000bp mark.


For those who have not followed this, the Swiss-based super secret commodities trading and investment firm got hammered throughout October, November and December far more than any other name in the field and far more than anybody who knew the company thought warranted. The CDS peaked above 3,000bp and there were plenty of whispers, though little real evidence, of a kind of pressure trade that shorted Glencore credit and the shares of its biggest investment holding, Xstrata, with the idea that declines in each would feed into further declines in the other. Read more

CDS report: Christmas cheer

European credit markets showed a little Christmas cheer Thursday morning by extending their better performance of the past couple of days, though participants said volumes were thin.

There was little news to move the markets, but the declines in the cost of protecting corporate bonds against default in the credit derivative indices were said to be further reaction to this week’s news that the US Federal Reserve would throw everything it had at kick-starting the US economy after it cut interest rates to near-zero. Read more

Glencore – capitulation?

Bit of a random post from me, but wanted to share the action in Glencore’s CDS price yesterday… after S&P downgraded the super-secret commods trader’s rating!


What? A big drop in its CDS due to a downgrade?! The move is partly down to the fact Glencore said it would buy back debt where investors were interested and made a sensible offer, but it might also be partly down to the fact that much of the rise in the CDS was pretty illusory and looks like it was based on very, very few trades, according to data that you can record from the DTCC if you check their site every week… Read more

CDS report: Credit worse into year end

Credit derivatives countered the brighter mood in equity markets with a sharp increase in the cost of protecting corporate debt against default on Monday morning, though traders and analysts said the moves were driven mainly by technical factors such as hedging ahead of the quiet holiday period.

The spread on the iTraxx Crossover list of mostly junk-rated European debt broke back above its previous closing high, though it remained just short of its intra-day high, after adding 20.45 basis points to hit 1,118.33bp – meaning it costs €1.118m annually to protect €10m of these bonds against default. Read more

CDS report: Autos bail-out fails to buoy credit

Credit markets broke the better tone of recent days with a slide in confidence on Wednesday morning that pushed the cost of protecting corporate debt against default on the main European indices back above key levels.

Energy, metals and chemicals  companies as well as banks were among those to suffer large spread increases, although one surprise was Gazprom, the Russian energy giant, which has seen its cost of protection decline over the past couple of days in spite of Standard & Poor’s decision on Monday to downgrade Russia’s sovereign rating on concerns about lower oil and gas prices. Read more

CDS report: Governments under pressure

Just as credit derivatives markets were getting used to collapsing banks, billion dollar bailouts and recession, the threat of political and fiscal instability shot up the agenda.

Events in India overnight saw five-year credit default swap (CDS) spreads on the government-run State Bank of India widen 20 basis points to 440bp, before falling back to 409bp. India has no outstanding overseas bonds and so the bank is seen as a proxy for India’s sovereign credit. Read more

CDS report: Glass half full

European investment grade credit markets were positive Friday morning, but only just, as falling oil prices, profit warnings and sluggish stock markets bought a dose of reality back to the strong performance of the past couple of days.

The main iTraxx Europe investment-grade index was 2 basis points tighter at 149.9bp, according to Markit Group, meaning it costs less than €150,000 annually to insure €10m of debt in the index, down from its all-time peak close of €172,000 a week ago. Read more

CDS report: Rate cuts lift mood

Credit markets rallied strongly Thursday morning after the 50 basis point rate cut from the US Federal Reserve, cuts from China and Taiwan and indications from central banks that they would continue to act against recession boosted sentiment across markets.

The cost of protecting corporate debt against default on the European indices dropped sharply, wiping out the sharp rises seen last week on the back of a storm of forced exits by leveraged investors as stock markets in Europe and Asia rallied. Read more

CDS report: Japan rate move lifts credit

European credit markets opened strongly in line with stock markets after speculation overnight that the Japanese government would cut interest rates to limit the strengthening of the Yen, which has been driven higher by the rapid recent unwinding of the so-called carry trade.

US stock markets saw a late surge on Tuesday when the speculation first emerged and Asian markets rallied strongly Wednesday followed by European and UK stocks. In Europe, the spread on the main iTraxx list of investment-grade corporate debt was 9.7 basis points tighter at 160.55bp, which means the cost of protecting €10m worrth of bonds in the index against default was €160,550 annually over five years. Read more