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Europe CDS Update: All Wider

Tyler Durden's picture




 

Well what do you know: you can beat them, you can trash them, you can make them illegal, you can even leave them for dead. But at the end of the day all Credit Default Swaps do is tell the truth better than any career politician.

                     5Y                               

ITALY               507/517  +25    
SPAIN              387/397  +3                         
PORTUGAL     1015/1055 +16                         
IRELAND         700/730  0                                 
GREECE         56.5/59.5 -1                                                                                                            
BELGIUM         287/297  +13                               
FRANCE          180/184  +5                                
AUSTRIA         155/163  +3                               
UK                   86/90  +3                         
GERMANY         86/89  +3.5   

 

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Mon, 11/07/2011 - 09:14 | 1852576 goldencross10
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Italy will be the next to fail, no doubt in my mind

Mon, 11/07/2011 - 10:30 | 1852841 topcallingtroll
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So it is expected that spain and portugal will stick to deficit reduction plans?

Mon, 11/07/2011 - 09:17 | 1852592 Ethics Gradient
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Germany = AAA at 86/89

France = AAA at 180/184

Hmmm.

Mon, 11/07/2011 - 09:21 | 1852610 mccoyspace
mccoyspace's picture

"All AAA are equal, but some AAA are more equal than others"

Mon, 11/07/2011 - 09:22 | 1852598 Clint Liquor
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oops

Mon, 11/07/2011 - 09:19 | 1852603 slaughterer
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France's AAA is dead man walking. 

Mon, 11/07/2011 - 09:35 | 1852674 CPL
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Wonder if it'll give up it's gold like Germany will this week.

Mon, 11/07/2011 - 09:21 | 1852614 Josephine29
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I guess Portugals numbers have been influenced heavily by this news today. These are the latest retail sales figures.

I also spotted some horrendous numbers on an annual comparison for Portugal at -6.2% and Spain at -5.8%. Portugal is looking ever more like Greece-lite, let us hope for her sake this trend does not continue.

http://www.mindfulmoney.co.uk/wp/author/shaun-richards/

Mon, 11/07/2011 - 09:21 | 1852616 rosex229
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Amazing how both the UK and Germany have no spread what-so-ever... then there's France

Mon, 11/07/2011 - 09:30 | 1852651 CosmicBuddha
CosmicBuddha's picture

"But at the end of the day all Credit Default Swaps do is tell the truth better than any career politician."

 

CDS are the biggest lie of all. If there is a systemic failure then none of these "insurance" products will pay out a single cent since all those who have written them will be bankrupt. Allowing "insurance" products to be written without any financial backing to ensure that they are paid is the achilles heel which will destroy the current financial system. 

Mon, 11/07/2011 - 10:06 | 1852783 kridkrid
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No. Credit/debt money and fractional reserve banking is what does the system in. CDS is, in theory, a way to profit from the madness.

Mon, 11/07/2011 - 13:19 | 1853698 CosmicBuddha
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CDS is the detonator whilst debt money and FRB is the bomb - much like a thermonuclear bomb, a fission bomb is needed as a detonator to reach the massive temperatures required to initiate the fusion reaction.

Mon, 11/07/2011 - 09:36 | 1852677 mess nonster
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“Tools that transfer risk can also increase systemic risk if major counterparties fail to manage their exposures properly.”

-Ms. Blythe Masters, the inventor of the CDS, first used to hedge Exxon's exposure to the Prince William Sound oil spill, and apparent master of understatement

"Oh....shit! Ohhh, my head...."

-Captain Joe Hazelwood, hung-over master of the Exxon Valdez, and the unwitting reason for the global economic meltdown.

Mon, 11/07/2011 - 09:41 | 1852694 common_sense
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WHAT ABOUT USA?  Berlusconi has lots of friends in USA... USA still AAA ???   WHYYYYYYYYYYYYYYYYYYYYYYyyyy??????

Any interest in USA to keep Papandreu in Greece and Berlusconi/Ruby in Italy ???  WHYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYY????

 

Mon, 11/07/2011 - 10:33 | 1852795 Mercury
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 But at the end of the day all Credit Default Swaps do is tell the truth better than any career politician.

Is it a sad commentary on the human condition in the “developed” world that such an opaque and abstract contrivance (especially one that has recently demonstrated failure to deliver the goods) is the best thermometer of reality?

 

...or just a demonstration of how a relatively free and unfettered market produces accurate price discovery?

Mon, 11/07/2011 - 10:11 | 1852796 Archduke
Archduke's picture

@tyler:  this is pedantic, but why is greece not at 5650/5950 like the others?

btw BBG CGGB1U5:IND isn't trading anymore (0%).

http://www.bloomberg.com/apps/quote?ticker=CGGB1U5:IND

Mon, 11/07/2011 - 10:22 | 1852822 ZeroPower
ZeroPower's picture

ITs pretty much redundant to quote CDS once you get into the stratosphere i.e. 2000bp+

Pts upfront are the convention now.

Mon, 11/07/2011 - 10:15 | 1852801 El Viejo
El Viejo's picture

The big question:
What is Goldman's exposure??

Mon, 11/07/2011 - 10:21 | 1852817 Mercury
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Net winning.

Mon, 11/07/2011 - 10:23 | 1852824 Snakeeyes
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Yup, and the Greek 1 yr is at 238.24%!

The Olive Oil Crisis Gets ... Oilier

http://confoundedinterest.wordpress.com

Mon, 11/07/2011 - 10:25 | 1852826 YesWeKahn
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And you can print, you can fake a recovery, you can pump a stock market...

Mon, 11/07/2011 - 10:28 | 1852833 AndrewJackson
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Can we start reporting bond yields as oppose to cds? Clearly, after the greece 50% voluntary haircuts, these products can not be trusted to show a valid market. If I were to buy a cds right now, I would view it as an option on insurance rather than straight up insurance. Anyone trading these things has to keep in mind the probability of "voluntary haircuts" coming when coming up with a  value for them.

Mon, 11/07/2011 - 10:37 | 1852867 topcallingtroll
topcallingtroll's picture

Rating agencies are beholden to their payers.
Governments kowtow to their swing voters.

The market knew the size of the greek haircut six months ago.

Under the circumstances the markets truth telling and signaling functions have performed amazingly well, in spite of the constant lies from governments attempting to influence it.

Mon, 11/07/2011 - 10:38 | 1852871 tavit8
tavit8's picture

Can someone please explain what these numbers represent? No need to explain how CDS works... thanks!

GREECE         56.5/59.5 -1

GERMANY         86/89  +3.5   

Mon, 11/07/2011 - 11:10 | 1852999 Archduke
Archduke's picture

cost of protection (bps): 

The "spread" of a CDS is the annual amount the protection buyer must pay the protection seller over the length of the contract, expressed as a percentage of the notional amount. For example, if the CDS spread of Risky Corp is 50 basis points, or 0.5% (1 basis point = 0.01%), then an investor buying $10 million worth of protection from AAA-Bank must pay the bank $50,000 per year.

 

Mon, 11/07/2011 - 11:33 | 1853107 Archduke
Archduke's picture

http://economicsofcontempt.blogspot.com/2009/01/upfront-cds-with-fixed-c...

 

Currently single-name CDS trade on a "running spread" or "par spread" basis—the protection buyer pays for protection by making regular spread payments (premiums) to the protection seller until the contract matures or there is a credit event. So for example, if a 5-year CDS on $10 million notional is quoted at 100bps, the protection buyer will pay $100,000 a year (usually broken into quarterly payments). Crucially, no money is exchanged upfront—this is why CDS are leveraged bets.

Now the market is moving to trading on a "points upfront" basis. Contracts will have fixed coupons of either 100bps or 500bps, and upfront payments will be made at initiation to reflect the change in price. The amount paid upfront will equal the present value of the difference between the current market spread and the fixed coupon. So if a contract with a fixed coupon of 100bps is trading at 150bps, the protection buyer would make an upfront payment equal to the present value of the difference between 150bps and 100bps. If the market spread is lower than the fixed coupon, then the protection seller would have to pay the difference between the two spreads upfront.

The most popular index contracts (CDX and iTraxx) trade on a similar points upfront basis. Each index series has a fixed coupon (expressed as a spread) that's set when the series is launched, and when the market spread trades away from the fixed spread (known as the "deal spread"), the parties make an upfront payment equal to the present value of the difference between the two spreads.

Mon, 11/07/2011 - 13:22 | 1853714 tavit8
tavit8's picture

Thx Archduke... but what exactly does 56.5/59.5 -1 mean for Greece?

Mon, 11/07/2011 - 15:22 | 1853883 Archduke
Archduke's picture

I believe 5650/5950 is the indicative bid/ask spread in basis points while -1 is the change (in %?).

As to why there should be a spread:  that's no doubt a function of illiquidity and opacity.

Maybe some smart swaps trader here can explain how the spread is calculated and skewed?

 

see the following http://www.cnbc.com/id/38451750  (not that I endorse cnbc) .

 

Mon, 11/07/2011 - 15:10 | 1854134 tavit8
tavit8's picture

So if i wanted to insure a 5 YR Greek bond until maturity I would have to pay 297.5% of par value in CDS premiums?? (59.5 CDS spread * 5 yrs)

Also, thanks for the link! I've been looking for free CDS spreads for a while now

Mon, 11/07/2011 - 15:27 | 1854251 Archduke
Archduke's picture

yes, but you'd only get 56.5 /annum if you were selling protection.  though these are indicative "ideal" spreads

what you'd get would be dependent on volume (notional), your credit rating, and your relationship with your dealer.

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