CDS Rerack: What Comes After Bloodbath? Bloodbather?

As overnight hopes of global bailouts fade, the reality that the markets are on their own has started to sink in across every asset class but perhaps credit - the life-blood of everything we do economically - is hurting the most. Senior financials are 14bps wider at 317.5bps (record wides), Main is 11bps wider at 209bps, and XOver 36bps wider at 880bps. Yesterday saw sovereign selling focused in the majors but today it has spilled over into everyone else as commodity producers have maintained their relationship with oil and have snapped wider.

IG is notably cheap (wide) of its fair-value and at the same time Seniro Financials are fair - which means that traders are 1) grabbing whatever is cheapest and liquid as a hedge (scramble), and 2) they are grabbing low beta, tight spread names in the index as even lower cost hedges also - so it may pay to look to take advantage of these moves in the higher quality IG names (though catching knives is never fun). Senior Fins are outperforming their index for now which looks more of a function of liquidity than anything else as Sub financials are 30bps wider at 570bps.

While SovX is 'only' 11bps wider at 368bps, CEEMEA is 41bps wider at 390bps overtaking SovX for the first time since June back to its more 'normal' position cheap to Western Europe.

US credit is a little less frantic but nevertheless notably wider with IG +2.5bps at 147.5bps and HY16 at 755 +23bps - while 3Y HY is popping more at 616bps +28bps as the front-end steepness continues to be sucked away as jump risk re-looms its ugly head.

US financials are all notably wider (and flatter) along with insurers who continue to bleed wider with HY. It does appear some discrimination is starting in Europe though as Barclays holds a lonely green line.


Charts: Bloomberg


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