Morgan Stanley CDS Curve Inverts As Risk Highest Since Q4 2008

Tyler Durden's picture

We have been discussing US (and European) financial risk for some time (especially recently with regard MS exposure to French banks). Since we published that article, we have seen incredible shifts in MS CDS and bonds even as stocks appear to shrug of some of the reality of the situation. An excellent article on Bloomberg last evening pointed out that not only was MS CDS at rather extreme levels, it was quietly as risky (if not more so) than many of the European banks that are making the headlines. Not only is MS CDS its highest since its spike highs in Q4 2008, the curve is inverted with 1Y risk trading 500/550 against 5Y risk at 455/470 which strongly suggests jump risk (or counterparty risk) is being aggressively hedged. With over $4.5bn of debt maturing in Q4 (which we have been pointing out for months - TLGP issues) and the increasingly binary nature of any outcomes, it seems the only real buyer of any MS debt are basis traders as the difference between bond spreads and CDS has halved in the last few weeks.


The only time that CDS for Morgan Stanley was higher was during the middle of the crisis when they spiked massively higher - the situation is becoming increasingly binary.

And the spread between bonds (which are trading wider - cheaper than) and CDS is falling (an upwards bias in the basis chart above) as basis traders (remember we discussed these traders in yesterday's closing market snapshot) step in to scoop up with 100-150bps differential. However, bond liquidity can disappear very quickly when outcomes are so uncertain (see Q4 2008 Q1 2009) and ask Boaz Weinstein - so don't be left holding that bag.

Charts: Bloomberg

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Careless Whisper's picture

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doomandbloom's picture

You should post this in the contributer section.


I miss the Project Mayhem reports...but this will do fine.

SheepDog-One's picture

Warren to ring the NYSE opening bell? Who cares wasnt that sold to the Germans?

Ruffcut's picture

I noticed when MS went up a buck over a couple days, the puts did not move much. I need a good payday. BAC falling is nice, too.

I can only imagine Brooksley Borne shacking her head about the cds ponzi.

Tense INDIAN's picture

cramer just said Morgan Stanley was fine

Jayda1850's picture

Said the same thing about bear stearns. 2008 Deja vu anyone?

anynonmous's picture

all we need is a confirmation from Bove and it's a lock

SheepDog-One's picture

Cramer Kiss of Death proclaiming a bank 'fine'...implosion in 3....2....

Gadfly's picture

If Cramer said it's fine, then it's definitely time to sell!

mayhem_korner's picture



This is like the market's version of margin hikes on banks.  Up, up, and awaaaaayyyy. 

Tee hee.

bigwavedave's picture

Why doesnt MS buy its own CDS? As a primary dealer this would be cheaper than a stock buyback program no?

snowball777's picture

And a great deal easier to keep under the radar. ;)

Robot Traders Mom's picture

Who would they buy CDS protection from? Someone else that already has exposure to them through swaps, etc? All that would do is tell the world they are throwing in the towel.

Good idea, but not workable. A stock buyback may give them a little bit of breathing room, but they are trying to shore up liquidty and capital. Doubtful that would happen.

Burnsy's picture

Probably just John Paulson pushing an illiquid market higher to hedge his totally fucked long posisiton in BAC from complete disaster. I am only half kidding.

doomandbloom's picture

Fire in the run run

sabra1's picture



Germany is rumored to have ordered printing plates to resume printing Marks, and is intending to walk. This does make sense, although the Germans would have to find a way to shield their banks from the impact of a massive shift off the Euro and into the Mark by Germans, which would spike the Mark higher and positively trash the Euro's value.

snowball777's picture

They've got some experience with changing horses midstream.

disabledvet's picture

that would annihilate the European Union. I'm not sure it's really even "doable" in the sense that transfer payments within the Euro area would cease and ...well...then what?

Belarus's picture

OFF TOPIC: It's amazing how pyschologically important the despots must feel the 11,000 mark is on the DOW. With this kind of completely rigged trading, it seems there should be a daily open thread for everything that appears to be bullshit trading. 

fdisk's picture

"rigged trading"..

Why is that? Market moving up, except lots of moaning

from ZH members. Do you get lesson yet buying Gold at 1950?

Now you going to get another one by Selling S&P AT 1100.

Watch and learn.

SheepDog-One's picture

'Market moving up'? What kind of upside down monitor do you have? Markets havent gone anywhere all year.

somethingisrotten's picture

I sure hope you keep buying.  We do love trolls with bulleyes on themselves.

I will just break out the popcorn and watch this slo-mo trainwreck with my stash.

fdisk's picture

And I hope you shorting huge like that BBC pink moron..
And wait for brain activity recession.

lizzy36's picture

P&L pics or you are just a troll.

Just an FYI, S&P basically flat since 2008. (despite $5T of fiscal and monetary stimulas) Gold on the other hand is up 96% in 3 years.

You seem like a clever guy, so I will let you figure correlation or causation.

Belarus's picture

Look at that fucking ramp. Should end up at least 200+ points for the day.

Cone of Uncertainty's picture

I'm buying some more ammo this weekend.

ivars's picture

Here is comparison chart between my feb 6th chart of DJIA and actual prices. After 8 months with mistakes in the middle, its for last 2 months within 0-5% of actual DJIA:


In original chart, the trend continues to go down with increasing speed. Recession in the USA is guaranteed in Q1 2012.

paul_Liu's picture

Tyler is the man.

Very good analysis, even more professional than the Bloomberg one.

Mr Warn-er's picture

Morgan's aggressive pricing in the structured world has been a give away for the last few months.