Spain CDS Notional Update
The Greek default was "all good" because the net notional was just $3 billion or so. Not to mention that all CDS holders were first spooked into believing their CDS would be worthless forcing the holders to unwind. Not to mention that all cash bondholders got Rettnered into believing that unless they participated in the exchange offer, the world would end (yes, we do have a recording of a rather striking conversation between a European eurocrat and a head of a multi-billion CT-based hedge fund... we may yet post it). Unfortunately, Spain has a little more CDS outstanding. $173 billion in gross and $14.8 billion in net to be precise. Alas, now that we enter unsalvageable situation territory, the net will ultimately become gross as daisy-chained risk linkages finally start breaking (as explained here). What is funny however, is that a year ago there was $19 billion in Spanish net exposure, a number which crashed 3 months ago when the sovereign CDS market was all but gutted. It is now growing rapidly and accelerating after the ISDA finally made the right decision. Only this time nobody will be reserved for a Spanish default. Expect to see this number rise ever more as hedge funds once again start using CDS to bet on a Spanish default. And now that the spotlight on the JPM CIO is fully lit, we are very, very curious as to who will be selling matching amounts...
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