Category Archives: derivatives

I’ve had my share of disagreements with Arnold Kling on the subject of credit default swaps in the past, but he has a good idea today: Regulators and accountants could require firms that are net sellers of credit default swaps … Continue reading →

A Credit Trader has a great post on what he calls "risky annuity risk", an artifact of the CDS market which will go away when all credit default swaps start trading on a fixed coupon. If you like to geek … Continue reading →

I was on a panel last night with Simon Constable of Dow Jones Newswires, and I’m sure that to our lay audience a peculiar exchange in the middle of the conversation must have sounded a bit like dolphin squeaks. He … Continue reading →

John Thain seems to think that the CDS basis trade was at least partly responsible for Merrill Lynch’s $15 billion loss last quarter. This from the transcript of his interview with Maria Bartiromo: Cash assets completely separated from their derivatives. … Continue reading →

Many thanks to JP Morgan, which sent me the data for the above chart, which shows the CDS-bond basis for BBB-rated debt. In English, that means it’s the number you get when you take the CDS spread on BBB-rated credits … Continue reading →

In the wake of making my proposal below (which I’m entirely serious about, by the way), I’m forced to agree with Gretchen Morgenson about this: Credit-default swaps clearly played a role in this debacle, and it is crucial that they … Continue reading →

Tyler at Zero Hedge has a wonderful post on the CDS basis trade today, which is a must-read for anybody who’s interested in what happened to the CDS basis in the fourth quarter of last year or how Merrill Lynch … Continue reading →

Michael Lewis has a grand theory about the CDS market: it was all one big mechanism for paying traders to take a whole bunch of tail risk which would eventually blow up all of Wall Street. You know, I have … Continue reading →

What’s going on with credit default swaps on the US government? 5-year CDS are trading in the 50bp to 60bp range these days, which implies a seriously non-negligible risk of default — and the higher the expected recovery value, the … Continue reading →

One of the things I’ve been missing in recent months is a smart and detailed attack on credit default swaps: my slogan when it came to CDS is that "the less you know, the worse they look". So I’m very … Continue reading →

John Dizard wants to kill off the entire CDS market. It does no good, he says, and quite a lot of harm, and we’d all be better off without it. I disagree. Dizard says there are only "three possible defences … Continue reading →

As I suspected, CDS collateral has a lot of complexities that I didn’t get to last time round. So with many thanks to my commenters and also to David Felsenthal of Clifford Chance, here’s more: on questions of buyers posting … Continue reading →

Reader Dennis Mangan emails asking how and where firms post collateral in the CDS market. It’s a good question, and the answer can get as complicated as you like. But here’s a short(ish) answer. Most of the time, collateral requirements … Continue reading →

Sam Jones nails it. If you have any more appetite for these things, go check his blog entry out, it’s great stuff. You’ll even learn all about those Canadian leveraged super-senior conduits!

Good news on the CDS front: Markit and Creditex are quietly and efficiently netting out contracts, bringing down notional amounts in single names alone by more than $1 trillion at this point. This is a sensible way to reduce risk … Continue reading →