The CDS Rally Is Over

Credit is now officially done with the rally. While last week's unprecedented $215 billion in CDS purchased will likely be a record for a while, this week saw yet another substantial $120 billion in net notional increase, based on 5,770 contracts exchanged. Also, net cumulative notional CDS by sector has surpassed the half a trillion mark since early April. This means that at least in CDS, asset managers are buying unprecedented amounts of rally correction protection. Soon even the financial net cumulative notional will surpass 0, while Consumer Goods And Services has seen almost $300 billion in CDS purchases over the past 9 weeks. When the consumer stock snap back occurs, based on the disbalance between equity and credit performance, it will be so vicious it will make the heads of those who are unhedged spin with an RPM that would make Ayrton Senna proud.





The only consistent sector of derisking was basic materials with $20 billion in CDS sold. Every other sector saw a landgrab in CDS last week, following through on the hungry, hungry hippo action of the week before.

Last week had total gross outstandings of $28.1 trillion, based on $15.5 trillion in single name CDS, and a dramatic and surprising reduction in index and index tranches of almost $1 trillion to $12.6 trillion. Based on preliminary conversations, this could be related to the peculiar unwind-like behavior we witnessed last week: did a major index trading hedge fund blow up?







Taking a look at single names, in the derisking category someone really did not like JP Morgan (JPM), and bought CDS hand over fist however without pushing the market too wide. Net notional change was an almost record $2.1 billion in the name alone (on $52.1 billion in gross) on a ridiculous amount of contracts. The balance was, again, the usual suspects: Austria, Spain, Greece, with Brazil, the U.K. and France filling the remaining sovereigns. Austrian bank Unicredit made an honorable appearance: are credit traders starting to be concerned about Central/Eastern Europe again? They were definitely prescient of the Latvian blow up yesterday. Other banks that people did not feel too hot about included perennial dunces Bank of America (BAC) and Wells Fargo (WFC).

In the rerisking category, Credit Suisse (CS) keeps on being the dealer favorite, with quite a few sovereigns making the de- to re-risk rotation. An odd name here was RR Donnelley (RRD): potentially on post-event profit taking. Also amusingly Toll (TOL) and Home Depot (HD) saw substantial rerisking: maybe the credit market isn't all that smart after all?




Source: DTCC Sphere: Related Content

Comments

[doubleguns:]

Who is selling the CDS's. Seems a really good short opportunity.

I hope if this is AIG at this again we LET THEM FAIL if it goes bad this time.

Bailing out AIG could be the trigger that starts the taxpayer revolution.

Jun 04 10:06 AM

[damon1leo:]

I like to read the line which state "someone did not like JPM." I have a nice position in Jan, 2010 $5 put options. I think JPM's time will come to pay the piper. I have taken the position it will be prior to Jan, 2010.

Jun 04 10:39 AM

[Prop Tradin...:]

One reason for a large single name purchases - Accounts are sitting on big MTM gains in Corp bonds they can't sell since they need to be invested, so they buy CDS to hedge out.

Jun 04 11:14 AM

[conceptwizard:]

"When the consumer stock snap back occurs, based on the disbalance between equity and credit performance, it will be so vicious it will make the heads of those who are unhedged spin with an RPM that would make Ayrton Senna proud".

Quite a literary poet Tyler, I got a visual on that statement. It was not "If" but "When" the snapback occurs. I have the same opinion. The next decline wont be pretty.

Jun 04 12:33 PM

[John02144:]

Who is selling the CDS's?!

Jun 04 01:50 PM

[Jett:]

I get the basic idea but could you put it in simpler words and explain for those of us not as sophiscated as yourself-?

Jun 04 09:31 PM

[Jett:]

New York's Economic Crisis: Banks Play Significant Role [View article] Subject: Re: Quote by Thomas Jefferson "If a Central Bank is ever created in America- Through Inflation and Deflation the "Bankers" will Rob The Americans"


****B of A to own Countrywide Mtg.(B of A will by itself control close to 40% of ALL USA Mortgages) with Countrywide
alone not counting the two below.

(Talk about a Monarchies)

JP Morgan to own EMC MTG.

Merrill Lynch to own Saxon Mtg.


Subject: Quote by Thomas Jefferson "Is a Central Bank is ever created in America- Through Inflation and Deflation the "Bankers" will Rob The "Americans"




This is the Truth-The Bankers created the S&L crisis and eliminated the competition and They created the Sub-prime crisis (The Banks create the product not the Loan-Brokers) and will eliminate the Loan Brokers.And have already procured the Treasury-and Federal Reserves' approval and the Supreme court confirmation to go into Real Estate and as The now deceased "George Thatcher" ( Thatcher who started Sterling S&L and build it into Union bank and sold it to Barclays -Who sold it to a Japanese Financial concern) told me - The Bankers tried this in the depression. As the "Movie" " A Wonderful Life" with Jimmy Stewart depicts" only this time the "Jimmy Stewarts of America" lose. Due to a ignorant Senate / Congress /and Public all to willing to buy the (BS) -That the Loan Brokers did it. And this way (With only the Banks left) the Public will save money with No competition (Wrong). Further the Late Senator "Henry Hyde" of Utah and "Henry Gonzales" of Texas held the Bankers at bay till "Henry Hyde's" apprentice turned on him after he died and "Sold" out to the Bankers.


Lets start a petition and have everyone from the Homeowners' losing their Homes to the Loan Brokers to the Real Estate community sign under this and get millions of signatures and STOP the Bankers before it is to late to save the "America" created by our Founders OR will we become like the "Serfs of Europe" in the 1300-1600s controlled by the Central Bankers as Slaves.


The plan is for a ALL powerful Federal-Central government to eliminate the States, And then , Run "America" Thru the Federal Reserve and its main Bankers .Example: B of A will control 22% of ALL Home Loans on the buy out of Countrywide. This means B of A will control more than 1 out of 5 Home
Loans. Remember the "Magna Carta" & the "Bill of Rights & The Sons of Liberty & Thomas Paine's "Common Sense" & the Laws against Monopolies.

The Truth is the Loan Brokers (were pawns) and for the most part made a living and sold their Loans to the big Banks who were not at this point controlled by Respa and resold the Loans at Multiple profits to the (GSEs). Compare the Loan-Brokers commissions with the Bankers." The BANKERS HAD THEIR HIGHEST PROFIT in HISTORY" from 1999-2006 who. and now are crying "Wolf" .

Our founders refused to have a Central Bank-- until the Traitor- Wilson "SOLD" out with J.P. Morgan's" Help creating the "Federal Reserve"

We had absolutely no national debt, had the largest middle class in the world, and Mom stayed home to raise the kids.
Read what Pres. Andrew Jackson Pres. Thomas Jefferson and Pres. George Washington thought of the Central Bankers.

The Treasury Department's plan to revamp regulation of the nation's banks, thrifts and investment banking firms is (so we hear) going nowhere fast. The blueprint - among other things - would eliminate state banking charters. As we all know, state chartered banks are at the center of the nation's mortgage crisis because they're the ones who created all those risky loan programs, securitized subprime mortgages, and sold them overseas in the form of CDOs to foreign investors. Ooops, I'm sorry that's Wall Street where Treasury secretary Henry Paulson used to work. If I were the head of a community bank trade organization I would attack the monster that created the mess: Wall Street. How best to do that? Answer: resurrect Glass-Steagall which (until it was torn down by Congress last decade) prohibited investment bankers from owning depositories and banks from underwriting securities..

Accounts Receivable Tax

Building Permit Tax

CDL License Tax

Cigarette Tax

Corporate Income Tax

Dog License Tax

Federal Income Tax

Federal Unemployment Tax (FUTA)

Fishing License Tax

Food License Tax

Fuel Perm it Tax

Gasoline Tax

Hunting License Tax

Inheritance Tax

Inventory Tax

IRS Interest Charges (tax on top of tax),

IRS Penalties (tax on top of tax),

Liquor Tax,

Luxury Tax,

Marriage License Tax,

Medicare Tax,

Property Tax,

Real Estate Tax,

Service charge taxes,

Social Security Tax,

Road Usage Tax (Truckers),

Sales Taxes,

Recreational Vehicle Tax,

School Tax,

State Income Tax,

State Unemployment Tax (SUTA),

Telephone Federal Excise Tax,

Telephone Federal Universal Service Fee Tax,



Telephone Federal, State and Local Surcharge Tax,

Telephone Minimum Usage Surcharge Tax,



Telephone Recurring and Non-recurring Charges Tax,

Telephone State and Local Tax,

Telephone Usage Charge Tax,

Utility Tax,

Vehicle License Registration Tax,

Vehicle Sales Tax,

Watercraft Registration Tax,

Well Permit Tax,

Workers Compensation Tax..



STILL THINK THIS IS FUNNY?

Not one of these taxes existed 100 years ago,

and our nation was the most prosperous in the world.

We had absolutely no national debt, had the largest middle class in the world, and Mom stayed home to raise the kids

Jun 04 09:33 PM

[American in...:]

Might also delay your retirement for twenty years ....


On Jun 04 10:06 AM doubleguns wrote:

> Who is selling the CDS's. Seems a really good short opportunity.
>
>
> I hope if this is AIG at this again we LET THEM FAIL if it goes bad
> this time.
>
> Bailing out AIG could be the trigger that starts the taxpayer revolution.

Jun 05 03:16 PM