Non-Naked European CDS Update

Non-hedged Eurosov CDS may be banned, hedged Eurosov CDS may be irrelevant, but courtesy of tens of billions in capital caught up in basis trades which are all about to be Boaz Weinstein'ed very soon, moves wider in cash will drag CDS along with them.

                          5Y                10Y          5/10's                           

ITALY            430/438  +29      418/432      -16/-6                             
SPAIN            335/343  +24     319/335      -14/-4                             
PORTUGAL     960/990  +15     720/790    -250/-190                          
IRELAND       680/710  +25      510/580    -180/-120                           
GREECE         53/56  +1         53.5/57.5    -0.5/2.5                                                                                                           
BELGIUM      265/275  +28      262/276      -6/4                             
FRANCE       171/175  +13      190/200      18/22                             
AUSTRIA     138/144  +14    153.5/163.5    15/20                             
UK                80/84  +6            97/103      16/20                             
GERMANY   80.5/83.5 +5.5      100/106      18/22

And some comments from Citi:

Change of mood this morning with several accounts resetting hedges on the back of several negative press article over the weekend pointing to the EFSF funding lack of details or China's role. Some accounts that went long at the end of last week and took profit in the ensuing rally are now  happy to go short on expectations of a technical pullback after such a strong rally.

The pressure has been felt mostly in Main through the underperformed of Italian yields feeding in Senior then Main. Xver only started to find buyers when stocks were pulling back after 8am and main turned buyers-only.

Main came back since then, following the sovereign market off the wides. We are now trading around 56.5 after a high print at 58.5

Today is month end so I would expect the market to hold relatively well. But if anything, one could see stocks overperform credit considering the buying pressure from accounts that do plan to keep their protection for a while.


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