The credit market was one step ahead of equities yet again, and correctly anticipated the market shakedown of this week, as accounts actively bought protection on a net basis in most sectors. Derisking was rampant with the net notional change week-over-week was $138 billion or an increase in 11,585 single-name CDS contracts. Rerisking occurred only in utilities, by $34 billion, and in industrials, by $12 billion. Derisking was most pronounced in sovereign and consumer services, by a little over $30 billion each.
Additionally, the decline in gross notional amounts seems to have stopped as broker dealers were likely writing new protection contracts on increased customer demand. Gross single-name notional increased from $14.2 trillion last week to $14.4 trillion, while indices and index tranches climbed from $13.2 trillion to $13.8 trillion, for total gross notional outstanding $28.2 trillion.
Based on these technicals, utility CDS seem to be best poised to widen over this week, especially with the pronounced overall market weakness.
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