CREDIT MARKETS CONTINUE TO WAVE THE WARNING FLAG
by ilene - February 5th, 2010 3:05 pm
CREDIT MARKETS CONTINUE TO WAVE THE WARNING FLAG
Courtesy of The Pragmatic Capitalist
One of the primary reasons for our move to sell equities in mid-January was the warning shot the CDS market was sending. Specifically, we said:
As the problem of debt refuses to go away and in fact, quietly spreads, we’ve seen another slow development over the course of the last few weeks – problems in Greece appear to be worse than originally expected and credit default swaps are sending warning messages again. The term structure in Greek CDS recently inverted as investors are now increasingly concerned of a default in the next few months. This is something we saw in 2008 before the financial markets nearly collapsed. That time the inversion was in Lehman Brothers and Merrill Lynch CDS.
As the problems in the banking sector unfolded in late Summer 2008 the sovereign debt of the big three developed nations began to skyrocket before reaching a crescendo in early 2009. What’s alarming with the situation in Greece is the similarities in CDS price action. The recent uptick could be serving as a warning flag of things to come in 2010 and 2011 when the problem of debt has potential to rear its ugly head again. Barclays might not have been too far off when they said the probability of a crisis would grow in 2010.
Well, this situation has only worsened in recent weeks and the equity
“The danger for every risk asset beyond IG credit is that if higher quality assets see forced re-pricing then it surely has to impact the riskier end of markets. The situation is increasingly reminding us of August/September 2008 when the credit market was sending out a strong sell signal to the equity market. Failing a quick sovereign bail-out, the credit markets are sending out a similar sell signal.”
Reid goes on to note that the markets appear to be accelerating what the governments hoped they could heal with time. In essence, we’ve put all our…
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Latest DTCC CDS Update
by Zero Hedge - May 27th, 2009 7:26 pm
Courtesy of Zero Hedge
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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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site