Wednesday, April 29, 2009

Latest DTCC CDS Update (Week Of April 24)

Last week was characterized by unprecedented rerisking in financial names, to the tune of $145 billion in notional change, representing over 28 thousand contracts. This was caused by an imbalance in New Trades ($173 billion) versus Full Terminations ($297 billion). Was the credit market a little trigger happy to say all green shoots in financials are in place? Or merely the equity driven short squeeze has forced even the usually cooler fixed income heads to push the "cover" button. With relative weakness in financials this week from the impending additional massive dilution at both C and BAC, this week's CDS marks will be interesting to keep track of at the next weekly update.

Total rerisking was just north of $100 billion, due exclusively to the financial segment. Some additional notable rerisking occurred in Basic Materials, offset by rerisking in Consumer Services, Utilities and Residential Mortgage Backed securities. State/Sovereign bodies was very quiet this week, ending the trend of significant volatility in the space over the past 3-4 weeks.

Gross outstandings week over week were $700 billion lower at $27.5 trillion, consisting of $15.1 trillion in single-names and $12.4 trillion in index and index tranches, the last metric dropping substantially ($600 billion) from a week ago.

In the weekly single name change category, Daimler shot up to the top Derisked position, after not even making the top 20 last week. Arcelor is a top three name yet again, with the Finance group making the inverse section again, indicating the hedge is still on. Curious is the presence of Mexico in the third position: maybe CDS traders had an inkling about the Swine Flu development ahead of time. In the meantime, the monkeyhammering of BofA CDS continues, with the company making the top 10 of CDS purchasing for a second week in a row. In the flip side, IAC/Interactive saw the biggest amount of net CDS selling, followed by BAA, Turkey, and the US also making the list of biggest net reriskers for the past week.

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