Tuesday, May 12, 2009

Latest DTCC CDS Update (Week Of May 08)

"Buy CDS" - that was the overarching theme from last week as $141 billion of rerisking occurred across all major sectors. Absent some nominal CDS derisking in Oil & Gas and Tech/Telecom, every single space saw credit traders betting that risk will increase. Of course, absent some swooning on Monday of this week, irrational exuberance 2.0 still dominates the equity markets, once again implying that credit is either generally more pessimistic than equities, or that CDS traders are much faster to bail at the first whiff of the squeeze ending. Either way, the major purchasing of protection in Consumer Goods and Sovereigns continues for a second straight week, contrary to any equity correlations, while Consumer Services, Industrials and Financials saw a violent snapback from last week derisking.

Gross outstandings week over week were $500 billion higher at $28.2 trillion, consisting of $15.2 trillion in single-names and $13.0 trillion in index and index tranches.

In single name derisking there was a curious repeat of 3 of the last week's top 5 names, with Macy's and Munich Re feeling general fear and loathing, while not at all oddly someone really is dumping vacation timeshare seller and Interactive spinoff Interval Cruises, which barely budged from most hated name last week to merely second most hated name. IILG, whose equity has been caught in a vicious short squeeze over the past two months (and what hasn't) and has risen by almost 300% in that time period, continues to experience major capital structure arbitrage divergence for a second week running as accounts continue to purchase IILG CDS head over heels, implying, at least on the surface, that equity is blissfully unaware of something that will likely bite its head off any second. Additionally Volkswagen has reappeared in the top 20 deriskers category, implying credit is potentially preparing for a capital structure showdown of sorts.

Amusingly, in the rerisk column, the mega unwind of GM CDS has now finished, and another LBO special, Alliance Boots has taken the role of the mega squeeze of the week. The other names were less notable, with several usual suspects making a repeat appearance after disappearing for a few weeks over the past month.

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