Wednesday, May 27, 2009

Latest DTCC CDS Update (Week Of May 22)

The latest data out of DTCC indicates that the volatility in the equity world is spreading to credit. Not only that, but last week the CDS market turned decidedly pessimistic, with over $215 billion in net CDS purchased, the highest amount in terms of net notional in over 2 months. Cumulative net CDS purchased since the start of April has ramped up to almost half a trillion dollars. Except for financials, even which also saw a cumulative derisking in the prior week, every single sector has now expressed a cumulative bearish sentiment over the past two months, continuing the optimism/pessimism divergence between equity and credit/CDS.

Sentiment turned aggressively bearish in Consumer goods and services with nearly $100 billion in CDS purchased, followed by Financials ($71 billion), utilities and oil/gas. The only rerisking sectors were Basic Materials and State Bodies.

Gross outstandings week over week rose a substantial $800 billion at $29.1 trillion, consisting of $15.4 trillion in single-names and $13.6 trillion in index and index tranches.

In single names, the risk keeps piling into the usual European sovereign suspects: Italy, Spain and Greece. Interestingly, the most negative sentiment by volume was focused on Wells Fargo, while CNBC parents GE saw a major increase in bearish sentiment. As expected Volkswagen is making its way back into the top 20 deriskers at 13th place. Look for this name much higher next week. In the rerisking category, the net notional ratio was much lower vs deriskers: some major notables were Credit Suisse, Ford, Starwood, Union Pacific and Sherwin Williams.

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