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’How to read CDS prices, featuring Portugal
When a sovereign or corporate becomes sufficiently distressed, a flip can happen in the way the credit default swaps are quoted. According to Markit, this is happening with Portugal now, with the CDS moving from being quoted in conventional spread to upfront.
Greek lessons for Portugal
It appears that the “voluntary” Greek bond swap might finally come to an end.
Time then to spare a thought for the derivative that drove the need to draft the damn thing so gently in the first place.
Barclays visits the securitisation BISTRO
FT Alphaville has outlined how securitisation is getting back to its roots lately, allowing banks to reduce capital holdings at a time when fresh capital is hard to come by.
Basically, they buy protection on slices of their own assets,
Back to the BISTRO for today’s securitisations — Part 1
The airwaves are once again aflutter with tales of the “shadow banking” sector, owing to the chief of the relatively new Financial Stability Board.
As the FT’s Tracy Alloway also recently reported, the sector was already back to its pre-crisis size at the end of 2010 at a healthy $60,000bn of assets.
A year in sovereign paradigm shifts
Every now and then we see credit default swap spreads out of the corner of our blog and think: “What?!!! When the hell did that happen?!!”
So FT Alphaville looked up when some of that happened, and we wanted to share our Top Five with you.
Clients spotted in the CDS market
“Over time we’ve seen a secular increase in the use of CDS and a decrease in the use of bonds as a trading tool,” he said. “Last year we saw bonds being placed at new issue more as a buy-and-hold investment as fund managers found their ability to trade out of bond positions in secondary markets much more limited.”
That’s Niall Cameron,
[Credit event auctions] Mechanics
Since 2009 credit event auctions that determine credit default swap payouts have been hardwired into the operations of the market. Previously, auctions were arranged on a more ad hoc, voluntary basis.
[Credit event auctions] A necessary condition for growth
Credit event auctions determine what the ultimate payout is when credit default swap contracts are triggered by a “credit event” such as bankruptcy.
In a previous post, FT Alphaville explained why such auctions came to exist.
[Credit event auctions] Why do they exist?
Credit event auctions are the means by which final payouts on credit default swap contracts are calculated. The importance of such auctions will increase as more and more defaults occur in the face of a global economic slowdown.
A Magyar martingale
(We mean martingale, the betting strategy, not the quant model!)
Here’s the thing about Hungary, as we see it anyway. If you look at things like the current account, for example, it says “fixable by the IMF”.
More on the conflicted Isda committee
The International Swaps and Derivatives Association has a list of journalists who’ve been naughty or nice. They write about them on their Media Comment blog here.
Given FT Alphaville’s previous post about the Isda-organised Determinations Committee,
The conflicted Isda committee
Imagine playing a game where you bet on the outcome of a certain event. Most of the time the final outcome is unambiguous: you play, and afterwards, it’s clear whether you won or you lost. But every now and then,
Credit derivatives are getting younger these days
A year ago, Nicholas Vause of the Bank of International Settlements wrote about “Counterparty risk and contract volumes in the credit default swap market” and pointed out the relative increase in shorter maturity contracts.
Meet the credit derivative “end-users”
It’s a well understood fact that credit derivatives markets are primarily dealer-to-dealer. We do, however, hear that there are clients, or “end-users”, hiding somewhere. The Bank of International Settlements’ Quarterly Review,
Debt and CDS: It’s complicated
In which we attempt to explain the complexities at the heart of the CDS trigger debate…
Debt is nothing more than a financial relationship between two parties, whether individuals or institutions.
Financial tsunami warning: credit edition
Imagine you are a structured credit investor standing on a cliff by the ocean. From your senior perch you observe more junior investors sunning themselves and reclining with e-readers on the beach below.
CDS indices hit records while uncleared sovs spike
We’re sure there’s a drinking game in here somewhere, given that Wednesday’s headlines about new records for credit default swap indices will be usable many a time over the coming weeks as the sovereign crisis lurches along.
99 per cent of credit derivatives are recorded by DTCC… sort of
The Depository Trust and Clearing Corporation, and representatives of trade association Isda, have stated on several occasions that 98 per cent of all credit derivatives outstanding are recorded in the Trade Information Warehouse that the former organisation runs.
98 per cent of credit derivatives are recorded by DTCC… right?
It’s a claim that is often made by representatives of the International Swaps and Derivatives Association and of The Depository Trust and Clearing Corporation that 98 per cent of all credit derivatives outstanding are recorded in the latter organisation’s Trade Information Warehouse.
The naked derivative exposures of banks to sovereigns
As spreads of all colours blow out due to the perpetually unresolved sovereign crisis in Europe, FT Alphaville has been wondering what non-fundamental factors are driving these moves. The bond market is in some places broken and in other places potentially being driven by regulation.
Peripheral exposures: mind the cash
Deutsche Bank’s credit strategists presented a useful analysis piece on Friday whereby they asked what the impact would be if one of the peripheral countries experienced a “credit event” on credit default swaps that reference them,
Is(da) derivatives industry misunderstood?
The International Swaps and Derivatives Association has been rather busy lately. In case you haven’t noticed, they’ve been on the public relations offensive, taking notes and calling out what they see as bad reporting,
Bursting the MENA credit bubble
And now for something completely different..
Middle Eastern credit spreads could soon blow up amid an outbreak of political strife with potentially global consequences.
Another portion of grief to your plate then.
Italian CDS curve inverts (and who made money?)
It’s not every day the second-biggest name in the CDS market goes from a healthy shape to a distressed one.
But Wednesday was that day, thanks to Italy.
Italy’s CDS curve — constructed from prices for one-year,
Italy CDS vs bonds: CDS win!
Remember a month or so ago when we told you there was evidence that CDS spreads may influence bond yields?
“Influence” is a strong word. It was more about which one leads the other. In our previous post,
EFSF CDS, not your standard credit derivative
After getting their latest bond offering off the ground at last – the EFSF has circulated a document to help everyone work out how to leverage it.
(Click for full document)
This should be doing the rounds of among investors,
Meanwhile, in Greek haircut plans
It’s a bit weird to focus on this when the Greek government still doesn’t know when, or if, it’ll get its delayed bailout loan. (Which would plunge Greece into a default on payments if it doesn’t.) All the more so if Greece faces a fast exit from the euro.
Why Italian sovereign CDS has left the banks behind
In a note on Friday, credit strategists at Citi noted the widening gap between the CDS spreads of European financials and their sovereigns, and went so far with it as to use the D-word: decoupling. Decoupler #1 being Italy,