Latest DTCC CDS Update (Week Of Feb 6)

The credit market was one step ahead of equities yet again, and correctly anticipated the market shakedown of this week, as accounts actively bought protection on a net basis in most sectors. Derisking was rampant with the net notional change week-over-week was $138 billion or an increase in 11,585 single-name CDS contracts. Rerisking occurred only in utilities, by $34 billion, and in industrials, by $12 billion. Derisking was most pronounced in sovereign and consumer services, by a little over $30 billion each.

Additionally, the decline in gross notional amounts seems to have stopped as broker dealers were likely writing new protection contracts on increased customer demand. Gross single-name notional increased from $14.2 trillion last week to $14.4 trillion, while indices and index tranches climbed from $13.2 trillion to $13.8 trillion, for total gross notional outstanding $28.2 trillion.

Based on these technicals, utility CDS seem to be best poised to widen over this week, especially with the pronounced overall market weakness.