First we had a surprise in the UK, when the service sector PMI expanded at its fastest rate since 2007. Then, earlier on Monday, we had a five month high chalked up in the US — as recorded by the Institute for Supply Management. That’s clearly helped produce this:
The European Commission has been investigating goings-on in the CDS world since Deutsche Borse and CME tried to enter between 2006 and 2009. The commission today said it’s reached a preliminary conclusion that — deep breath — ISDA, Markit, Bank of America Merrill Lynch, Barclays, Bear Stearns, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Royal Bank of Scotland, and UBS all infringed EU antitrust rules. Deutsche and CME tried to get in and were denied exchange trading licences by ISDA, Markit, and the banks, says the commission.
From the statement (our emphasis):
Brussels, 1 July 2013
Antitrust: Commission sends statement of objections to 13 investment banks, ISDA and Markit in credit default swaps investigation
Ever hear the word “innovation” and not be able to stop yourself from wincing? Then you probably work in financial markets.
With the above thought in mind, let’s play a special FT Alphaville edition of Mad Libs.
For those unfamiliar with the game, fill in the below blanks as per the instructions that accompany them. Then read the paragraph below, inserting the words you wrote into the appropriate spaces. Read more
It was a PMI surprise, with UK service sector data appearing from Markit Group just before the close of trading in London on Tuesday.
It shouldn’t have happened. The original release was scheduled for Wednesday at 09.30am, but due to a Reuters Instant View error the number was outed on Tuesday at 1600. Read more
Let’s start on a positive note on the volley of Markit PMI released Monday.
Spain’s PMI rose during August to 44, versus 42.3 in July… Read more
“Me want data!”
London and New York, NY – Markit, a leading, global financial information services company, today announced the acquisition of Data Explorers, a leading provider of global securities lending data, from mid-market private equity firm Bowmark Capital. Read more
Royal Bank of Scotland was penalised $1.9m on Tuesday, after it placed below-market prices in an auction among 13 credit default swap dealers, reports the FT. The auction was held to ascertain the value of debt issued by Dynegy, which recently filed for bankruptcy. RBS was assessed the charge after its offer price on $5m of Dynegy bonds was 31.5 basis points or 31.5 cents on the dollar for the debt. Other banks provided offer prices ranging from 69.63bp to 72bp, according to the results published on CreditFixings.com, a website run by Creditex and Markit Group, who administered the auction on behalf of the International Swaps and Derivatives Association.
The London Stock Exchange has made a bid for a majority stake in LCH.Clearnet, raising the stakes in the battle for control of Europe’s last remaining independent clearing house and valuing the company at about €1bn ($1.4bn), reports the FT. The move pits the LSE against Markit, a UK post-trade services group, for control of LCH.Clearnet, one of the most prized assets in the business of clearing equities and over-the-counter derivatives. It also comes as new regulations on derivatives emerging from Brussels and the prospect of a merger of Deutsche Börse and NYSE Euronext are casting a cloud over the UK’s key market infrastructure operators – the LSE and LCH.Clearnet.
GERMAN 5-YEAR CREDIT DEFAULT SWAPS RISE ABOVE UK CDS FOR FIRST TIME-MARKIT
An interesting pair of charts compiled by Markit’s Lisa Pollack:
A Chinese purchasing managers’ index fell below 50 for July, the first time since March 2009, Bloomberg reports. The early estimate, based on a survey by HSBC and Markit Economics, was down to 49.4 from 50.4 in June. HSBC said it expected industrial growth to continue decelerating in the coming months. However Societe Generale cautioned last week that seasonal distortions raised the risk that this month’s PMI readings could fall below 50 and Qu Hongbin, a Hong Kong-based economist at HSBC, told Bloomberg that China is having a “slowdown not a meltdown”.
It’s safe to say we didn’t take this entirely seriously when it landed in the FT Alphaville inbox a couple of weeks ago.
GBP: The Closure of The News Of The World could be the start of a deeper and more lengthy commentary on Politics and the Press in the UK. The Cameron Government is well entrenched with the Media, and we would be surprised if we do not hear of Higher Level Goverment employees resigning in the next few weeks as the Government ‘Inquiry’ digs deeper. Though we are negative the USD, for the time being we are not negative the USD against the GBP. It is sitting on support at 1.5940, with the 50 DMA about to Cross the 100 DMA. The Possibility of Government Corruption and the eventual Clarity is never positive for a Currency – Douglas Borthwick, MD of Faros Trading. Read more
Friday’s stunning announcement from the EU Commission below:
The European Commission has opened two antitrust investigations concerning the Credit Default Swaps market. CDS are financial instruments meant to protect investors in the event a company or State they have invested in default on their payments. They are also used as speculative tools. In the first case, the Commission will examine whether 16 investment banks and Markit, the leading provider of financial information in the CDS market, have colluded and/or may hold and abuse a dominant position in order to control the financial information on CDS. If proven such behaviour would be a violation of EU antitrust rules. In the second case, the Commission opened proceedings against 9 of the banks and ICE Clear Europe, the leading clearing house for CDS. Here, the Commission will investigate in particular whether the preferential tariffs granted by ICE to the 9 banks have the effect of locking them in the ICE system to the detriment of competitors. Read more
Here’s an interesting Wednesday story from the Financial Times’ Aline van Duyn.
It concerns growing demand for a synthetic product — this time linked to junk, or high-yield, bonds. The market size of the product (which is tranched and linked to Markit’s CDX index) is still relatively small. But demand for actual junk bonds has been strong recently — with average junk prices even hitting par value during 2010. Read more
Markit credit analyst Lisa Pollack discusses the evolution of the sovereign CDS market, and the growing importance of the ‘Quanto spread’ in eurozone CDS.
Are these the same credits I used to know? Read more
Markit credit analyst Lisa Pollack investigates why 2007 is still haunting a number of CDS index products when it comes to off-the-run volumes.
According to ISDA, there were $62,000bn of credit default swaps (CDS) at the end of 2007. What exactly is this number though? First, it’s gross, not net. If one desk at a dealer is a buyer of $10m of CDS protection and another desk at the same dealer is a seller of $10m of CDS protection, the dealer as a whole has a net position of zero. In order to be perfectly fungible, the two CDS contracts have to have the same attributes, meaning reference entity, tier, maturity, currency, and restructuring clause. Read more
Now, this a relief rally.
Allied Irish/Bank of Ireland CDS, via Markit.
Markit pointed out something interesting on Monday: there’s a record spread between their iTraxx Europe and SovX Western Europe CDS indices.
Chart via Bloomberg, click to enlarge: Read more
Remember that ‘successful’ Irish bond auction on Tuesday?
Thought not. Read more
The session opened on a positive note, with Ben Bernanke’s comments about the US and European economies having a calming effect. But this didn’t last long and risk aversion soon regained its hold over the credit and equity markets. There wasn’t a clear negative catalyst that precipitated the shift in sentiment, though the significant underperformance of the banking sector suggests that it is still seen as the credit market’s Achilles heel. The Markit iTraxx Senior Financials was 15bp wider at 208bp, and the index was approaching its record closing wide of 210bp in March 2009. Given that many of the major banks were on the verge of collapse at this time credit investors clearly have a dim view of the sector’s prospects. Rumours have been flying around the market and investors are looking for clarity.
The sovereign market, whose governments are effectively the benefactors of their banking sectors, enjoyed a relatively tepid day by its standards. The Markit iTraxx SovX Western Europe index was 1bp tighter at 167bp, though it did go beyond 170bp earlier in the session. The index has outperformed its corporate sibling in recent days, being more or less at the same level as last Friday (see chart). Read more
Monday’s sovereign CDS action, in a Markit chart…
It seems CDS players are happy not to hold positions open through to Monday.
Prices from Markit: Read more
Before Xstrata and Glencore can merge, the financial markets need to be able to work out how much Glencore might be worth, FT Alphaville notes. Read more
(Now with added graph and context)
As investors scramble to protect themselves from the next credit flare-up in Europe, their worries are spreading to the U.K. Read more
Subprime is indeed back in the headlines and with it, the ABX index.
Readers may recall the ABX index, which was created in January 2006, partially at the behest of people like Greg Lippmann. Consisting of baskets of CDS tied to subprime mortgages, it allowed investors to go long — or short — the market without actually having to hold onto bonds. Read more
Following its ratings action on Portugal, S&P downgraded Greece by a full three notches on Tuesday to BB+/B — junk status. From the agency’s release:
· We have updated our assessment of the political, economic, and budgetary challenges that the Greek government faces in its efforts to place Greece’s public debt burden onto a sustained downward trajectory. Read more
The SovX Western Europe index went above 90bps for the first time on Wednesday:
One man’s woe is another man’s windfall, as the financial crisis reminds us again and again.
Now, the eurozone’s problems are providing a field day for some savvy hedge funds who just can’t wait for more trouble to rear its ugly head. And their prayers are likely to be answered. Read more