CDS

CDS

As For That Little "Secret" Shindig In Sitges, Spain...

Love them or hate them, they sure know how to pick nice, and soon to be insolvent, resorts. After meeting in Vouliagmeni, Greece in 2009, 6 months before it was uncovered the country is glaringly bankrupt, the Bilderberg group is doing its annual resort camp out in the Barcelona resort town of Sitges this weekend. Regardless of one's opinions of the Logan Act, any meeting that will probably see Tim Geithner and Ben Bernanke as its attendees should likely have much more press exposure. Either way, if the Greece "study" is any case in point to the near-term consequences of what one can expect, it may be time to really load up on Spain CDS. And not only - the least subtle headline of the day comes courtesy of the Telegraph, that the "Euro will be dead in five years", and goes on to say: "The single currency is in its death throes and may not survive in its current membership for a week, let alone the next five years, according to a selection of responses to the survey – the first major wide-ranging litmus test of economic opinion in the City since the election." Secret meeting lore aside, one can be certain that the primary topic of discussion in Sitges' Dolce hotel will be what to do with the euro. We would be very wary of whatever kneejerk reaction is provoked in the market come late afternoon when the EURUSD starts trading again.

The Telegraph does a good job of separating the Bilderberg fact from fiction in the following article, and RT has a good video clip summary of this weekend's events for the reading challenged.

Guest Post: TIPS Vs Treasuries

Treasury Inflation Protected Securities are government issued securities adjusted bi-annually for inflation. When the urban consumer price index (CPI-U) increases, the face value and the yield on TIPS also increases. If investors are concerned about inflation, TIPS are one method of protection (you can buy them directly from the government here: http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm) given that they are directly tied to inflation. Unlike other investments which “should” appreciate in an inflationary environment, TIPS do appreciate.

Daily Credit Summary: June 4 - More Straws, Less Camels

As a reminder, for anyone considering this a buying opportunity (other than for a swing trade) based on rebalancing or mean-reversion should note two things: fund outflows are picking up for risk assets, and, even more importantly in our view, risk budgets will mean that allocations will be materially lower (in their wondrously pro-cyclical manner) as we note IG's three-month realized vol is its highest since NOV08 and HY's three-month realized vol is its highest since OCT07 (higher still if we adjust for intraday vol)!

Forint In Freefall As Unicredit "Recommends" Hungary Central Bank Intervene

Hilarious. Any time reality kicks in, the bankers (in this case Unicredit, whose CDS looks so fingerlicking good here) have no other recourse than to beg the money printing acolytes of Keynesianism to push things back to the fake trendline of the credit-driven expansion of the past 30 years. We wish them well. Alas, if the CHF is any indication, it is now too late.

Hungary CDS Offerless, 100 Wider At 430 bps

To all those who listened to Hugh Hendry's recommendation to panic a week ago, congratulations- you are well ahead of the market today. Hungary CDS is now offerless as investors are shocked, shocked, that the country (and continent) is actually really bankrupt, as opposed to just make believe. IMF's comments yesterday that it does not have the funds to rescue all of Europe are not helping. Hungary CDS is now essentially bidless last seen 120 bps wider, around 430/460 with the bid/ask spread at 30bps, and only dealers daring to take on any risk exposure as the risk off brigade has kicked the optimists out of the building. The one thing up today so far? Gold. NFP better be north of 100 million or else the stick save today will be a tad problematic.

Europe's Core Is Burning, As Austria Next On The Implosion Radar; German, France CDS Blow Out

Austria, the country most exposed to weakness in Central and Eastern Europe, is back on the radar. After having avoided skeptical investor scrutiny even as the bulk of Europe was collapsing all around it, the country is today's top CDS widener, yet still stunningly trades inside of France and Belgium. Look for this spread to blow out over the next week. Then again, the biggest CDS wideners are precisely the countries formerly seen safe: Austria, France, Germany and Belgium are all the top movers in CDS. So much for the whole North vs South division in Europe.

Europe Tremors Resume: Spain Bund Spreads At All Time Wides, China Exporters Ditch Euro As CHF Surges

Another horrendous day shaping up for Europe. Spanish Bund spreads have surged to all time highs just south of 200 bps, Hungary confirms that it was not exaggerating comments about chances of (not) avoiding Greek situation, pushing its CDS even wider, the EURCHF has dropped to under 1.40 and the SNB has not intervened yet, while the EURUSD is down to 4 year lows below 1.21. The nail in the euro coffin is a report by Reuters that a growing number of Chinese exporters turn down euro payment, flatly refuting anything SAFE may be saying officially.

Got Gold? Head Of IMF Policy-Steering Committee Says Fund Needs $320 Billion To Be "Properly Resourced"

Those observing the emperor's lack of clothing are multiplying. Earlier today, someone opened their mouth, and remarked on the blatantly obvious. Next thing you know Hungarian CDS was 30% wider, Romanian bond auctions were failing, the euro was tumbling, the PPT was scrambling, US markets closed green with nobody trading, etc. Yet the "letting the genie out of the bottle" award of the day has to go to the head of IMF's policy-steering committee, Youssef Boutros-Ghali who said that the IMF is essentially insolvent in its current form of being the go to backstop for a European bailout. "If we are going to start including funds made available to
Europe, then the IMF is not properly resourced," Youssef
Boutros-Ghali told Reuters, adding that IMF members were
talking of doubling the amount of SDRs
. The means the IMF is $318 billion short of solvency. And what is the IMF long? Why gold...3,005 tonnes worth.

Hungary CDS Off To The Races: +60 On News IMF Mission Chief Going To Budapest For Informal Talks

Retuers reports that the IMF mission chief Rosenberg is going to Budapest to hold informal talks with the new Hungarian government - is this a preamble to the latest admission of austerity failure in an IMF intermediation. Independent of this, Hungary CDS is now exploding wider, and was 60 bps at last check, however this name is now virtually bidless. In other news portofolio.hu reports that Hungary was forced to cut a bond auction today over subdued demand.

Forint Slide Accelerates As Hungarian Default Risk Now 14 Wider To 277bps

Poor, poor Europe. Every room one shines a light in, the cockroaches don't even bother to scurry to safety any more. Yet what is glaringly obvious takes a media-reported soundbite to awake people. So is the case with Hungary today. After opening 7 tighter, Hungarian CDS are now 14 bps wider to 277bps. As the attached chart shows, the Hungarian Forint is now in freefall. Yet if investors are concerned about Hungary, they should take a look at some of its less lucky Eastern European neighbors which, just like Hungary, have been considered to be strong for so long.

Volumeless Distribution Day; Market Efficiency Defined: Anadarko CDS 100 Wider As Stock Closes 5% Higher

This is how the market responds to a day fully replete with good news, and even more volume participation: three days worth of trading undone in one hour. The 20-day daily average cumulative volume in ES is 3.15 million. We closed 2.17 million, or 31% lower. Lesson for the day: when the machines are in "distribution" mode, you get out of the way. Especially with Obama about to announce 1 million newly employed people despite 450k+ consistent initial weekly claims. After all what good is the upcoming 0.5 million Birth-Death adjustment for if you can't use it to top off the 0.5 million new census hiring. And another indication of market efficiency: APC stock up 5%, even as its CDS closed +116 wider. Add imminent threat of bankruptcy to the list of upside stock drivers.

RIG CDS Market 500/550, +100bps On The Day, All Time Wides

Following yesterday's announcement that the US has asked a federal judge in Houston to reject a bid by Transocean Ltd. to cap its liability in the explosion of the Deepwater Horizon and resulting spill at $27 million, Transocean is literally falling apart. Its CDS level has surged by over 100 bps today, with a market so wide at 500/550 it may need a few HFT quants to narrow it. As we commented yesterday, RIG CDS trading points up front is likely hours away should the news flow not improve. The IG9 name has caught many correlation traders with their pants down and underhedged, and is causing some serious intrinsic rumblings. The same is true for HAL and APC which also are getting punished. BP has temporarily stabilized after a few conflicted sellside analysts had some soothing words for their clients, just so respective prop desks can offload existing inventory into a last minute attempt to prop up the stock price before yet another wipeout.

UK Continues To Be A Top Sovereign CDS Derisker

After taking a brief break last week, the UK is once again firmly in the top sovereign deriskers: a place it has held with pride for almost two months now. Summing up cumulative net notional exposure on the UK based on just the last several weeks results in a net short exposure of well over $3 billion. Someone has now amassed a huge short on the British Isles. Curiously, the country that was actually the top derisker in the past week, with $420 million in net notional change, was Brazil, the same Brazil which today decided to not lift any offers in its 2021 Fixed Coupon Bond auction. Is this the next hotbed of instability? Look for at least one more week of aggressive derisking before confirming this trend. Turkey completes the trio of top deriskers, with $172 billion in CDS. Surely with the prior week ending on May 28, there is no way anyone could have hedged for an Israeli incursion of Turkish ships ahead of time. On the other end, some of the names that have been making the news recently, have seen some material rerisking, probably based on short positional unwinds: the top five were the US, Japan, Austria, France and China. After tonight's news out of Tokyo, look for Japan to take its rightful place at the top of this table.