Non-Naked European CDS Update

Tyler Durden's picture

Non-hedged Eurosov CDS may be banned, hedged Eurosov CDS may be irrelevant, but courtesy of tens of billions in capital caught up in basis trades which are all about to be Boaz Weinstein'ed very soon, moves wider in cash will drag CDS along with them.

                          5Y                10Y          5/10's                           

ITALY            430/438  +29      418/432      -16/-6                             
SPAIN            335/343  +24     319/335      -14/-4                             
PORTUGAL     960/990  +15     720/790    -250/-190                          
IRELAND       680/710  +25      510/580    -180/-120                           
GREECE         53/56  +1         53.5/57.5    -0.5/2.5                                                                                                           
BELGIUM      265/275  +28      262/276      -6/4                             
FRANCE       171/175  +13      190/200      18/22                             
AUSTRIA     138/144  +14    153.5/163.5    15/20                             
UK                80/84  +6            97/103      16/20                             
GERMANY   80.5/83.5 +5.5      100/106      18/22

And some comments from Citi:

Change of mood this morning with several accounts resetting hedges on the back of several negative press article over the weekend pointing to the EFSF funding lack of details or China's role. Some accounts that went long at the end of last week and took profit in the ensuing rally are now  happy to go short on expectations of a technical pullback after such a strong rally.

The pressure has been felt mostly in Main through the underperformed of Italian yields feeding in Senior then Main. Xver only started to find buyers when stocks were pulling back after 8am and main turned buyers-only.

Main came back since then, following the sovereign market off the wides. We are now trading around 56.5 after a high print at 58.5

Today is month end so I would expect the market to hold relatively well. But if anything, one could see stocks overperform credit considering the buying pressure from accounts that do plan to keep their protection for a while.

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ZeroPower's picture

FRA-GER spread back to divergence.

Ghordius's picture

hmmm... did I post BAN CDS today? ;-)

stopcpdotcom's picture

Can someone please explain why GREECE is only 53/56 ?

I'd have thought it would be a lot more than that.

Sorry to appear dim.

ZeroPower's picture

Wrong. Its in points upfront. Read ISDAs 'big bang' and 'small bang'

Ethics Gradient's picture

Can someone just downgrade France to really get this party started? There isn't going to be growth out of this, there isn't going to be a solution involving that bastard currency. The longer the delay, the more complicated things are going to be to unwind. Don't be shy, now. Downgrade her!

RobotTrader's picture

Soaring Italian bond yields punishing gold again.

ananke's picture

I'm not a trader type. Can anyone explain to me why derivatives and other extremely complicated instruments which the average person does not understand have not been banned?

I mean, I completely understand the need for complex maths in, let's say, string physics. Apparently, we need complex maths to understand the universe. But finance, we create ourselves. So, call me a Luddite, but I think that unless someone is a crook, they should not really need the type of maths in finance that is generally used only for the behavior of matter in an Einstein-Boese condensate moving near the speed of light.

Janice's picture

The short answer is because the Congress has been bought by the big banks, institutions and corporations.

Darth Silver's picture

they say the market is always accurate.  the "they" are often wrong.

case in point: 

1. the cds market has helped to keep yields down for sovereign bonds, and

2. if you buy the assumption that sovereign CDS are worthless, then

3. when will the market wake up and start trading the bonds at risk appropriate yields (across the board).


follow up to this, Tyler remember a few months ago you stated that the treasury or fed was writing CDS on US Treasuries.  when will people wake up and Kaboom..... Bill Gross becomes right?

El Viejo's picture

First they burn books, then ...