Huge CDS buy rally last week - net notional purchasing of protection skyrocketed from a mere $12 billion last week to $250 billion, with a net contract increase of 14,330 contracts compared to only 4,615 in the prior week. As ZH presumed last week, the consumer services space did in fact see significant net purchasing ($42 billion) and spread widening. Other major derisking sectors were financials ($65 billion) and sovereigns ($34 billion).
Gross outstandings increased by $300 billion to $27.5 trillion, consisting of $14.9 trillion in single name CDS ($300 billion increase from last week), and index and index tranches of $12.7 trillion, flat with last week.
While the derisking was to be expected as the credit market yet again anticipated the end of the equity rally, the gross and net notional changes do not imply a dramatic fall off in CDS activity ahead of either the fixed coupon transition or the clearinghouse trading. This is a good indication of the health and stability of the market, which has full confidence that both transitions should be smooth and seamless.