Latest DTCC CDS Update (Week Of August 7)
Continued substantial rerisking continued in financial last week, however at a slightly moderated rate. From the $96.2 billion net notional decline in the week ended July 31, the last week saw a $54.4 billion decline. Total net notional change was one tenth that of the previous week at -$14.5 billion, with a marked derisking in consumer services at $25.1 billion. Other notable derisking spaces were Industrials and State Bodies.
Total Gross CDS outstanding was at $26.3 trillion, a decline of $300 billion from the prior week. This consisted of $15.2 trillion in
single names, $7.8 trillion in indices and $3.3 trillion in tranches,
all of which were about 85% held by dealers. The index gross notional decline has persisted for several months now, leading one to wonder when whoever is unwinding their index position will be finally done? Also, just how is this index arb unwind affecting equity and other markets?
Looking at single name action indicates some quite odd: in the face of the major rerisking in most financials (Morgan Stanley, DB, JPM, Ambac, Merrill, all made up the top 20 reriskers), Goldman was prominently in the derisking category in the 6th top position with over $120 million in net notional increase, yet oddly with $1.5 billion in gross open interest decline. Imperial Chemical was acting quite oddly with $200 million in net derisking on almost $9 billion of gross: a very dramatic delta. Curiously, the USA, whose spread has recently collapse to plain stupid levels, rounded off the list of top 20 net deriskers. Other prominent deriskers ahead of this week's odd stock action, were CIT and AIG, it seems the funds that had purchased the stock decided to hedge by aggressively loading up in CDS.