CDS

Huge CDS buy rally last week - net notional purchasing of protection skyrocketed from a mere $12 billion last week to $250 billion, with a net contract increase of 14,330 contracts compared to only 4,615 in the prior week. As ZH presumed last week, the consumer services space did in fact see significant net purchasing ($42 billion) and spread widening. Other major derisking sectors were financials ($65 billion) and sovereigns ($34 billion).

In an interesting development in CDS land, holders (and sellers) of Abitibi protection are looking to dealers for determination whether a credit event has occurred at Abitibi, or so debtwire reports. If anyone has followed the story here, last week Abitibi received a stay from acceleration on yet another "peak-of-the-bubble" term loan arranged by the helpful people at Goldman Sachs (batting ratio of about 100% in loan-to-bankruptcies so far).

An interesting opinion from Karl Denninger that I missed when it came out. Hat tip to reader Colin for pointing out. In a nutshell Zero Hedge disagrees with Karl's conclusion: his argument of reflexivity in pricing feeding collateral calls is an oversimplifcation.

Some seriously premature tightening in insurance cos...

Some seriously premature tightening in insurance cos...

Net notional purchasing of protection dropped from $131.5 billion net in the prior week to a mere $12 billion last week, with a net contract increase of only 4,615 contracts compared to 30,348 in the prior week. The rerisking in consumer services has surprisingly continued at an accelerated pace with healthcare also seeing a significant net outflow in CDS notionals. Technicals suggest the consumer services space is due for a substantial widening in spread.

Last market was 615/645. This is roughly where Bear Stearns traded days before Jimmy Cayne's rastafarian reign came to an end.

Below is a chart of Citi CDS through yesterday.

Last market was 615/645. This is roughly where Bear Stearns traded days before Jimmy Cayne's rastafarian reign came to an end.

Below is a chart of Citi CDS through yesterday.

Last market was 615/645. This is roughly where Bear Stearns traded days before Jimmy Cayne's rastafarian reign came to an end.

Below is a chart of Citi CDS through yesterday.

As expected, the SEC promptly granted an exemption for the ICE to begin guaranteeing CDS. ICE competitor CME Group has not received an SEC exemption and it is not clear how long it would take for the SEC to make a decision on the competitive platform.

Either way, the ICE has said it will begin backing trades in the market as soon as Monday of next week. Farewell basis trade (unless our readers feel otherwise, in which case we welcome their thoughts).

Rampant purchasing of protection last week. Net notional positive change (CDS purchasing) of $132 billion this week versus only $8 billion previously. Trading action also ramps up by over 300% with 30,348 contracts traded versus 9,538 last week. Virtually all sectors saw short-risk ramping except consumer services which was the only space with reriskng action.

Rampant purchasing of protection last week. Net notional positive change (CDS purchasing) of $132 billion this week versus only $8 billion previously. Trading action also ramps up by over 300% with 30,348 contracts traded versus 9,538 last week. Virtually all sectors saw short-risk ramping except consumer services which was the only space with reriskng action.

The market seems to have sealed the chemical company's fate, essentially saying the likelihood of bankruptcy is about 130% (give or take). Rumors are swirling that Chemtura's destitute bondholders have hired Akin Gump to help them salvage a little of what asset value the plastics maker might have left. With a full blown liquidity crisis and $375 million in notes due this July, the company at this point may at best have another 4 more months of life.

Reader Mike points out an interesting potential selling opportunity in AIG 1 Yr CDS, which is trading on one of the most inverted curves in CDS land. As a collapse of AIG would be equivalent to the blasphemous "credit event" of U.S. Sovereign CDS, having to pay for the settlement on 1 years in AIG seems like an oddly armageddonesque prospect.

Reader Mike points out an interesting potential selling opportunity in AIG 1 Yr CDS, which is trading on one of the most inverted curves in CDS land. As a collapse of AIG would be equivalent to the blasphemous "credit event" of U.S. Sovereign CDS, having to pay for the settlement on 1 years in AIG seems like an oddly armageddonesque prospect.