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Step Aside UniCredit And Italy: The US Is Number One... In Monthly Spike Of Default Bets
When we looked at the notional change in net outstanding CDS on the top 25 reference entities tracked by DTCC last week, we first made the discovery that the US has for the first time surpassed Greece in number of net speculative default bets outstanding. It was, also, the most rerisked name in total monthly notional, outpacing China and Japan in second and third place. Following tonight's weekly update from DTCC we get an even starker picture of where America lies on the risk spectrum: just to the left of UniCredit and Italy (left being bad). As the chart below indicates, the monthly percentage change in the number of net CDS contracts outstanding on the US increased by a whopping 10%, beating such insolvent entities as Italy's top bank and Italy itself (with mega black swan China, and 200% debt/GDP Japan coming in 4th and 5th place). And completing the bad news for the US from the perspective of a CDS trader, is that for the first time ever, US 1/5 year CDS inverted. Why? Because with American recovery rates well in the 80s based on trading prices of the cheapest to deliver bonds, unlike other sovereigns such as Greece which may need recovery calcs in the 20s or 30s, this is virtually equivalent to trading points up front and convexity is massive. It also means that with the 52 week Bill pricing at 0.2% earlier today, anyone who wishes to transact in a 1 year basis trade, can make a lot of money by putting on the negative basis courtesy of the blow out in 1 Year CDS compared to cash... assuming the US does not default of course. But in that case one will be bigger problems than paying their counterparty the require variation margin.
In other words, America is now where Greece was right about January of 2010, when Paulson et al were putting on their massive basis trades on that particular insolvent country.
Monthly change in net notional CDS outstanding:
And the 1/5 year CDS inversion:
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Your posts are so enjoyable. Clicking an up arrow just doesn't do them justice.
Perhaps now that the silly CDS circus has turned on the USA it becomes more obvious that it's a damaging business which should be outlawed or regulated like insurance...
CDS is insurance. Since long time we know that if you allow Fred to buy 20 insurance contracts on Tom's home and look away, next time you look Fred is rich and Tom's home is in ashes.
TBTFs, you just laid fire to your protector's home. Have a wonderful bonus time so long...
http://www.youtube.com/watch?v=4PQrz8F0dBI
Billion Chinese and Indians are willing to work as slaves for the benefit of top 0.1% corporate executives and shareholders. American and European middle class has no chance unless a revolution happens.
Have fun !
http://www.wtfnoway.com/
Who cares?
http://www.marketwatch.com/story/why-google-is-going-to-1500-2011-07-27?...
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