CDS

from Markit

from Markit

from Markit

France, Germany and Japan all less risky than the U.S.

France, Germany and Japan all less risky than the U.S.

Last week's significant net rerisking in consumer services has continued and has now spread to the basic materials and consumer goods sectors. The only sector which saw a notable derisking was financials, with $25 billion in net notional, or 5,546 contract increase. Net single-name notional did not change from last week at $1.4 trillion, however the reduction in gross single-name notional continues and has dropped by $200 billion to $14.2 trillion this week.

Last week's significant net rerisking in consumer services has continued and has now spread to the basic materials and consumer goods sectors. The only sector which saw a notable derisking was financials, with $25 billion in net notional, or 5,546 contract increase. Net single-name notional did not change from last week at $1.4 trillion, however the reduction in gross single-name notional continues and has dropped by $200 billion to $14.2 trillion this week.

When you have the House Agriculture Committee getting involved in the regulation of the CDS market, it is only a matter of time before it is game over. When both conventional wisdom, and economists-turned-philosophers like Soros claim that credit default swaps are responsible for the downfall of western civilization, presenting any type of factual information is pretty much useless.

When I discussed the basis trade opportunity, the conclusion was that arbitrage in the secondary (and by extension primary) market exists due to significant dislocations in liquidity. Sure, one can argue that immediate culprits for the arbitrage have to do with counterparty risk and funding costs, which makes sense, but those are merely derivatives of the liquidity disconnects between different brokers, their accounts, and any permutations thereof.

(from Markit)

New DTCC weekly change numbers released for week ended January 23. Most notable is the huge gross notional and contractual amount of full terminations of consumer services CDS. Looks like funds are fully covering overhanging shorts. As this has been the most profitable position over the past 3 months it is not too surprising. Based on this technical data, we would recommend establishing short positions in the space due to the diminishing risk of a mass squeeze.

New DTCC weekly change numbers released for week ended January 23. Most notable is the huge gross notional and contractual amount of full terminations of consumer services CDS. Looks like funds are fully covering overhanging shorts. As this has been the most profitable position over the past 3 months it is not too surprising. Based on this technical data, we would recommend establishing short positions in the space due to the diminishing risk of a mass squeeze.