Wednesday, June 17, 2009

Latest DTCC CDS Update (Week Of June 12)

After three very volatile weeks, it seems the CDS world tapered off modestly. While action was rather subdued, the bulk of activity was focused on insurance buying, with over $63 billion in net notional being purchased in over 3,400 contracts. Total cumulative CDS action since the beginning of April grew to over $400 billion, and virtually all sectors are now net derisked over the past 2 months, with the consumer leading the risk parade.

In derisking, the biggest swing sectors were financials and consumer services, accounting for $44 and $23 billion, respectively, while sovereigns and industrials were the only reriskers at $29 and $27 billion.

The week saw total gross outstandings of $27.4 trillion, based on $15.4 trillion in single name CDS, a $100 billion increase from the prior week, and an ongoing reduction in index tranches by $600 billion to $11.9 trillion The ongoing gross notional elimination in indices versus single names is perplexing and many speculate is due to an ongoing index hedge fund deleveraging/unwind.

In single-name action, as always sovereigns were the most derisked names, with Turkey, Portugal , Germany and Russia dominating the main action. As Zero Hedge expected, euro auto action is picking up with Renault making it into the top 20 with over $100 billion in net notional action. Most notably is the 20th name - Clear Channel Communications: this is a name that could, very much like Six Flags was, be very profitable to accounts who put on a very near term flattener (3/6 months; 3/9 months).

In the reriskers Rio Tinto, Russia, CSC, Korea and Sherwin Williams dominated the action. Curiously Rio Tinto's $386 billion action was based on a mere 6 contracts changing hands. Either this is a mistake by DTCC or there is something quite fishy going on here.

Source: DTCC Sphere: Related Content
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