CDS Rerack: Risk, It's Back!

Tyler Durden's picture

As S&P futures head back towards their lows, they remain notably above commensurate credit-inferred levels as the credit and TSY complex is showing stresses far more than equities so far (and we know how that has ended recently). Europe is very ugly again with the major credit indices all significantly wider. Financials are losing grip on any hope as we now start to see not just PIIGS spreads widening but the core spreads crack as risk transfer is priced into the overall euro-area balance sheet. Non-financial European corps are also notably weaker as transmission mechanisms drag the real economy down and that is implicitly crossing the pond to drag IG and HY spreads wider over here.

Chart: Bloomberg

While CDS roll tomorrow and the new credit indices begin trading, we expect to see some more volatility in credit. Typically skews (the difference between index levels and their intrinsic value) will compress into the roll and while we are seeing that to some extent in IG and Main, HY (which does not roll for another week) is notably underperforming at the index level (macro overlays come back as once again cash liquidity dries up).

Main +10 to 186bps

XOver +35 to 749bps

Main ExFINs +7 to 162bps

SENFIN +25 to 287bps

SUBFIN +36 to 493bps

Worst FINLs (DV01 adjusted)

Intesa Sanpaolo +35 to 425bps

Banca Monte dei Paschi di Siena +45 to 530bps

Banco Popolare +40 to 680bps

Unicredit +30 to 450bps

Banco Bilbao Vizcaya Argentaria +25 to 325bps


SovX +16 to 330bps

Germany +6 to 89bps (most above 2Y Bunds ever!)

France +18 to 181.5bps

Portugal  +60 to 1105bps

Italy +35 to 487bps

Ireland +12 to 810bps

Greece +90 to 3085bps

Spain +34 to 404bps


IG +3.5bps to 129bps

HY +25bps to 695bps


Oil just broke $86, Copper $380.

TSYs 7-9bps lower in yield since Friday and 2s10s30s -10bps at 54bps (notably lower and in our view seeing QE3's (Twist) reflexive benefits dragging ES performance down from the carry-driven perspective).

EUR getting close to 1.36 with DXY back to last Wednesday's highs.

ES is opening the day session -23bps but looks to test VWAP at 1192 before resuming its drop.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
lolmao500's picture

SP500 fair value : 600.

vast-dom's picture

SP value according to my views is 850. But 600 is certainly not out of the question. 

vast-dom's picture

"WASHINGTON (MarketWatch) - Federal Reserve Board Chairman Ben Bernanke has started a process that may lead to the central bank setting targets for unemployment and inflation, according to a report in The Wall Street Journal on Monday. The report, citing people familiar with the matter, said Bernanke has asked Charles Evans, the president of the Chicago Fed and a prominent dove and Charles Plosser, the president of the Philadelphia Fed, and a prominent hawk, to work together on improving how the Fed explains its economic goals. One key issue is explaining what would make the Fed hike rates given its August statement that it expects to keep rates near zero until mid-2013. The issue is unlikely to be resolved at the Fed's two-day policy meeting that ends Wednesday, the report said."



DirtMerchant's picture

to work together on improving how the Fed explains its economic goals

Really? What are the FED mandates? How difficult would it be to explain how the FED policies achieve the FED mandates?

It's fucking impossible because their policies actually are designed to have an inverse effect to the mandates!

Spirit Of Truth's picture

Seriously cocoa puffs koo koo!

The Fed has to be one of the most arrogant institutions ever established.  Do they really think they can micromanage markets and the economy?  Can they be any more idiotic?

It's tragic the financial system and world economy are imploding because of the bubbles Al & Ben have blown, but at least one positive outcome will be the abolition of the Fed and overthrow of the extraordinary popular delusions of modern economic "science".


lapedochild's picture

Yes, i think that too.. .but question is how do we get there from here with all this intervention now almost happening on a daily basis? Also... with so much more money in the system being printed during qe1/2 is 600 not too low?

Cognitive Dissonance's picture

Oh look, a new deck of cards to play with. Maybe I won't be so screwed this time.

Hope springs eternal.

SheepDog-One's picture

Equities are the perfect full retard crowd control tool, they mean far less than any other market, yet theyve trained the public to believe 'The DOW=the economy'.

janus's picture

as ZH's wellington once said:

sweet jeebus!

again, SO glad i didn't close my shorts on friday!!!

today's gonna be a fun one from my side of the stands.

Thanks for all that, TD.

sodbuster's picture

Risk on, bitchez!!

So Close's picture

Little help?

"ES is opening the day session -23bps but looks to test VWAP at 1192 before resuming its drop."

VWAP = ???

Thanks in advance!

LawsofPhysics's picture

Was risk really ever off?  Where are all those shills who "bought the dip" on friday?  Fucking morons, but they sure are fun to laugh at.

eddiebe's picture

Ok., is anybody ever looking at the risk in U.S. treasuries? Everytime 'risk is off' people run to bonds and dollars. How pathetic. As if that will keep them whole or make them money. Amazing.

rubearish10's picture

This move feels too orderly. VOLS are not anything near what we saw in early August. Market is still on stand-by at "remarked" SPooz 1180. We wait for ??

YesWeKahn's picture

They really should tell their goal for the SP 500 and the dow. Their stupid policy helped nothing but the stock market and commodities.