Spain CDS Notional Update

Tyler Durden's picture

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...

Source: DTCC

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transaccountin's picture

but Draghi said the crisis is nearly over

Global Hunter's picture

he looks like a child molestor and deviants of that variety are not to be trusted.  everything he does or says is a lie

Belarusian Bull's picture

Crisis? It was just a temporary hardship, was it not?

justanothernerd's picture

As a function of notional, no wonder there is a huge amount of outstanding CDSs for Norway -- that country will not default anytime soon. Selling CDSs on them is free money. 

Jason T's picture

OT: BP stations in MA out of gas.. 150 stations are out of gas.  This is what the  future looks like in the northeast of the US.

blu's picture

Posted on ZH a long time ago, can't remember who, I still go back and re-read this:

Dr. Engali's picture

With all of this going on...who in their right mind is buying bonds and CDSs?

LongSoupLine's picture

yeah, sure...and it's gone.


Here's comes the f'ing bullshit algo ramp after european close.  I hate those HFT fuckers!

EverythingEviL's picture

Post the conversation!  Pretty Please?


Dicite justitiam's picture

A notion like a moth

Flitters into that bright light

And notional too.

Broccoli's picture

I wish I could buy insurance on my neighbors house burning down.

Tom Servo's picture

I'll be more than happy to sell you some...

Good luck collecting on your policy though :)

holdbuysell's picture

"Alas, now that we enter unsalvageable situation territory, the net will ultimately become net as daisy-chained risk linkages finally start breaking."

Just a nit--I believe this is meant to read "the net will ultimately become gross."

One of the many lessons ZH has so meticulously taught us, but just in case others have not seen those pieces on how net becomes gross when the daisy chain breaks.

Edit: ZH already updated the article accordingly...please ignore this post.

blu's picture

"Kingdom"? They are all kingdoms?

Man we do have a long way to go.

miltiadis's picture

Yeah you didn't noticed how many people watch the Royal wedding in London... 2012 and we still have people believing in Royalty and leting them have huge properties...

RoadKill's picture

I have a bone to pick with the derrivative dooms-dayers.

Why wasnt Gross a big deal in Greece? Greece CDS was supposed to be the end of the world and the impact seems to have been minimsl.

Am I missing something? Is it a yet to be administered event (ie still coming) or is Spain different. Afterall if net is the right metric their is a lot less to worry about.

Also you guys are aware that collateral is posted every day right? So CDS going up is a liquidity drain, but when CDS ultimately exercises their should already be collateral to pay it.

Dont get me wrong. Im A BEAR I just want to be an informed bear

ZeroPower's picture

Net is pretty much always the right metric to use, except that this thing called counterparty risk tends to fuck it up (as was the case with AIG). When your long CDS is excercised and goes off seemingly without a hitch, the CDS market is working fine. When your counterparty ends up being insolvent and can't pay out, that is where the problem is. Add in 2 or more insolvent counterparties, and the clusterfuck begins.

Note ive oversimplified what happens during a credit event, but the jist should be easy to understand.

Marginal Call's picture

The net was dependant on volumtary "haircuts" if I'm not mistaken.  Only the bond holdouts got paid.