• 29 Jun 2009 at 12:18 PM

New CDS Indices Sure To Calm Investor Fears

By Greg Michaels

For those in the ‘CDS are weapons of financial mass destruction’ camp, today is not your day. Due to the prevalence of major industrialized countries putting their fiscal problems on their credit cards and turning themselves into emerging market nations, Markit plans to launch four news indices focused on sovereign default risk. While the sovereign CDS market used to be focused on places like Brazil and Russia, in a few months you’ll be able to trade the solvency of the G7 and Western Europe – assuming you can find somebody to go long.
New indices to trade in sovereign default risk [FT]

Comments (15)

  1. 1
    Posted by guest | June 29, 2009 at 12:40 PM

    too afraid to comment

  2. 2
    Posted by guest | June 29, 2009 at 12:47 PM

    The Markit iTraxx CEEMEA index should be entertaining when Goldman starts taking down countries.

  3. 3
    Posted by guest | June 29, 2009 at 12:48 PM

    Is there any reason to buy CDS in US debt? So let me get this straight, if the US defaults on its debt you’ll give me a bunch of… US dollars? Those should be great for starting a fire to scare away raiding parties. If these things were denominated in gold bricks or colorful seashells then maybe I would be interested.

  4. 4
    Posted by guest | June 29, 2009 at 12:49 PM

    Greg, this is disappointing. Reading your posts is like reading FT…

  5. 5
    Posted by guest | June 29, 2009 at 12:49 PM

    The Markit iTraxx CEEMEA index should be entertaining when Goldman starts taking down countries.

  6. 6
    Posted by guest | June 29, 2009 at 12:51 PM

    -@3
    No, the US CDS is euro denominated. Has been for a long while.

  7. 7
    Posted by guest | June 29, 2009 at 1:54 PM

    can i have my 15 seconds back?

  8. 8
    Posted by guest | June 29, 2009 at 1:55 PM

    @6 Who would the counterparty be and would they be solvent if the US Gov defaulted?
    -not 3

  9. 9
    Posted by guest | June 29, 2009 at 2:02 PM

    -@8
    Any number of counterparties will make you 2 way prices on this underlying, its not a big deal, its a pretty actively traded instrument in the OTC market -
    US is trading around 38 bp, UK around 81, Germany around 35. All 5y.
    Who will be around to pay? Depends on exactly how the default event happens.

  10. 10
    Posted by guest | June 29, 2009 at 2:15 PM

    Selling CDS on U.S. sovereign debt is a riskless trade. Not because the Treasury can inflate its way out of trouble blah blah blah. Rather, because at such a time when you would be liable to make payment on the contract, you’ll have already declared bankruptcy yourself. That’s if you’re not surviving by sustenance farming in northern Canada or something…

  11. 11
    Posted by guest | June 29, 2009 at 2:21 PM

    -@10
    No Mr Casano, you have to get a grip.

  12. 12
    Posted by guest | June 29, 2009 at 2:51 PM

    @11
    AIG is the perfect example. They could have written CDS on U.S. treasuries all day long at no risk, or at least incremental risk, to the company. There was plenty of gunpowder in the hold that was gonna blow before that trade would ever go sour.
    - 10

  13. 13
    Posted by guest | June 29, 2009 at 4:19 PM

    As 11 alludes to – of COURSE you have risk when you sell US sov CDS – mark to market risk duh.
    Clever people like 10 who sold lots of protection a year or two ago are now facing a massive mark-to-market loss.

  14. 14
    Posted by guest | June 29, 2009 at 5:37 PM

    http://www.ft.com
    search >> CDS
    selection.copy
    http://www.dealbreaker.com
    activesheet.paste
    =
    Greg’s post

  15. 15
    Posted by guest | June 29, 2009 at 8:46 PM

    Nobody knows what is in those CDS contracts. There’s nothing standard or transparent about them. The price of an “index” of obscure gambles is pretty meaningless unless you are a pure gambler.

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