• News

    Argentina’s Not The Only One Who’d Like A Little More Time

    If the world’s favorite uniquely recalcitrant debtor can delay deciding whether or not to default, […]

    / Jun 24, 2014 at 5:02 PM
  • News

    You Didn’t Lose All That Money On Swaps Because You Are Bad At Investing And Risk-Management

    You lost it because banks are monopolistic monsters. Just ask an affiliate of a corpse […]

    / Jul 31, 2013 at 5:07 PM
  • EU antitrust czar Joaquin Almunia. I guess they don't call them "czars" in Europe though.


    Banks Preferred Profitable CDS Business Over Less Profitable One

    The thing about antitrust law is that it’s so understandable. Not in the sense that […]

    / Jul 1, 2013 at 3:03 PM
  • You have underestimated me for the last time.


    Apparently Some People Pay Attention To Ratings Agencies

    Would you have predicted this? This paper investigates the impact of credit rating changes on […]

    / Jun 17, 2013 at 9:41 AM
  • Lions Gate, Mycenae. Have we done this one before? Running out of Greek sites that I've been to that aren't just, like, holes in the ground.


    CDS Market Almost Ready For Another Greek Default

    Last week ISDA, who are in charge of credit default swaps, circulated some proposed changes […]

    / Mar 11, 2013 at 4:15 PM
  • The boat. At the very least, *a* boat.


    Argentina Looking Forward To Reading, Ignoring U.S. Court’s Opinion

    Yesterday the Second Circuit held arguments in the Argentina sovereign debt case. This case is […]

    / Feb 28, 2013 at 5:37 PM
  • News

    CDS Contracts Not Ready For The Ways We Go Bankrupt Now

    CDS, what is wrong with you? Here is how CDS should work: There are bonds. […]

    / Feb 11, 2013 at 3:01 PM
  • madoffdancing


    Bernie Madoff Was A Toni Braxton Fan

    Unfortunately the Ponzi schemer and TB had to part ways when the government seized his […]

    / Jan 18, 2013 at 6:14 PM
  • it ate a bond payment


    Argentina Beset By Pirates, Snakes

    Let’s check in on Argentina. It’s a lovable mess! You can read some background here […]

    / Nov 21, 2012 at 2:39 PM
  • News

    Europe’s Short Sale Ban May Be Slightly Less Terrible Than They Want You To Think

    Europe is doing various terrible things about short selling today, and go talk about them […]

    / Nov 1, 2012 at 6:42 PM
  • I am not IN LOVE with the explanations here. Basically it seems like you read the lines (LHS) as performance of ETF and non-ETF IG bonds, and the bars (RHS) as the difference between them, which is fine as far as it goes, with the thing about "The plot shows year-to-date cumulative flows in IG" just being like a typo or something ... ?


    Bonds In ETFs Are Better Than Bonds That Aren’t In ETFs, Sort Of

    Coincidentally while I was noodling about bond indexes on Friday so was Goldman credit strategy […]

    / Sep 24, 2012 at 5:28 PM


    The CDX And The Whale

    The OCC report on bank derivative activities is rarely what you would call a laugh […]

    / Sep 21, 2012 at 1:29 PM
  • News

    If a Whale Flaps His Flippers in London, It Causes a Tiny Increase in McDonald’s CDS Spreads

    Reuters had a neat article today about how JPMorgan’s CIO embarrassment increased credit spreads for […]

    / Jun 14, 2012 at 1:20 PM
  • News

    And Now, Spanish CDS

    Did you think you could avoid it? So the deal is this. Spain has some […]

    / Jun 11, 2012 at 12:03 PM
  • News

    The CDS Market For Lemons

    A stylized picture of a credit default swap is that it’s a way for a […]

    / Jun 1, 2012 at 4:03 PM
  • News

    Greek CDS Will Be Fixed Soon, In Case You Were Waiting On That

    As Greece prepares to default on its new bonds, now seems as good a time […]

    / May 9, 2012 at 7:15 PM
  • News

    You Say “Voldemort” Like That’s A Bad Thing

    Do you think that Bruno Iksil, when he woke up in Paris on Friday looking forward to trading from home in his black jeans, expected to become an international celebrity? The evidence suggests not. You may remember Iksil – possibly under other names like “Voldemort” or “the London Whale™” as the JPMorgan chief investment office trader who has sold protection on $100bn of notional of a CDX investment grade index to … hedge … JPMorgan’s massive short position in credit … or … something?* Anyway a lot of people are mad at him because that’s just too much protection to sell on that index and so they are complaining to Bloomberg and the Journal about how he is manipulating the market and also taking huge proprietary risks with JPMorgan capital that should obvs be regulated out of existence.

    This is weird in a lot of ways but one of them is that you can distill a lot of the Volcker-Rule complaints into “my God, you’re telling me that JPMorgan is exposed to $100bn of credit risk on investment-grade debt issued by a diverse mix of 121 U.S. companies!?” No! JPMorgan is exposed to something like $750bn of credit risk on debt issued by a diverse mix of companies. Some of it’s non-US. Some of it’s not even investment grade. And that’s just in its loan book.** Is writing $100bn of protection on the CDX.IG.NA.9 a terrible risk to take with investor and depositor and government-backstop money? Well, define “terrible risk.” It’s certainly less risky than operating the rest of JPMorgan.***

    / Apr 9, 2012 at 4:58 PM
  • News

    Derivative Surprises Everyone By Accomplishing Purpose and Unwinding at Randomly Generated Market Value

    Yay, Greek CDS worked. But, as we talked about a bit, it almost didn’t: By […]

    / Mar 19, 2012 at 3:41 PM
  • News

    So Maybe Greek CDS Will Be More Than Fine?

    Gaaaaaaaaaaaaaaaah Greece.

    Okay so all systems appear to be go on the Greek debt exchange, which means its time to decide What This Means, and, I just. Really. Greece. Come on. All I want is to talk about 13D reporting requirements, and now I have to pay attention to Portugal? No. Just no.*

    Still here is arguably a fun factoid:

    On Wednesday, Swiss bank UBS AG started quoting a “gray market” in new Greek sovereign bonds … using as a guide details of the debt swap Greece has put on the table for private investors to accept until Thursday evening. The “bid” price for a batch of future Greek bonds due in 2042, or the highest price the dealer was willing to pay, was around 15 cents on the dollar; the “offer” price, or the most the dealer was willing to sell at, was 17 cents on the dollar, the first person said. … The prices quoted by UBS imply that losses private creditors to Greece will take are more like 79% of face value, not the original haircut of 70-75% many had expected.

    Yeah but. If you believe this horrible CDS mechanics stuff that various people including me have been yammering about for weeks – here is the best explanation – that means that if for some reason you had the foresight to be long Greek bonds and hold CDS against them you’d end up with a package worth (1) 21 on the bonds and (2) 83 on the CDS (assuming that the 17 offer for the 2042 bonds represents a real price for the cheapest-to-deliver new bond in the Greek auction) for (3) 104 total which is (4) more than par, so you win this particular game, yay. Which you were at risk of losing – a week ago one of our fearless commenters spotted the longest new bonds at 25ish vs. 24ish for the old-bond-y package, for a total of 99 for the hedged holder – losing 1 point versus par.**

    / Mar 8, 2012 at 4:54 PM
  • This adorable little building is the Athenian Treasury at Delphi


    This Is The Last Greek CDS Post Ever*

    There’s that famous scene in Liar’s Poker – are there non-famous scenes in Liar’s Poker? – where the much maligned equity department sends a program trader to impress Michael Lewis’s jackass fellow Salomon trainees with his brilliance. It does not work:

    He lectured on his specialty. Then he opened the floor to questions. An M.B.A. from Chicago named Franky Simon moved in for the kill.

    “When you trade equity options,” asked my friend Franky, “do you hedge your gamma and theta or just your delta? And if you don’t hedge your gamma and theta, why not?”

    The equity options specialist nodded for about ten seconds. I’m not sure he even understood the words. … The options trader lamely tried to laugh himself out of his hole. “You know,” he said, “I don’t know the answer. That’s probably why I don’t have trouble trading. I’ll find out and come back tomorrow. I’m not really up on options theory.”

    “That,” said Franky, “is why you are in equities.”

    This is totes unfair to the actual equity vol traders I know, but I kind of felt like that guy after talking to a CDS lawyer yesterday about this craziness in Greece. It went something like this:

    Me: As an equity derivatives guy, I expect derivatives to transform into derivatives on whatever their underlying transforms into. And I’m troubled by them not doing that.
    Lawyer: You should not be troubled by the concept of cheapest to deliver.

    Yeah fair! That’s the thing about CDS. Dopes like me think of it as just a rough proxy for default risk but when things get real like with Greece it turns into a cheapest to deliver convexity play and then I slink away in embarrassment. But yeah, as a matter of rough justice, if you can go be opportunistic about finding the cheapest to deliver bond, Greece can go be crappy about leaving you with only expensive to deliver bonds. I guess.

    / Mar 2, 2012 at 5:57 PM
  • Temple of Zeus at Olympus


    So Maybe Greek CDS Won’t Be Fine, Who Knows, I Give Up

    ISDA decided today that there has been no credit event for purposes of Greek CDS. Obvs! And by “obvs!” I mean what I said the other day, which is that with 100% certainty there’s been no credit event yet, but with 100% certainty there will be, so everyone should just chill out.

    Except that it seems like that last part may be wrong. So go ahead and panic.

    I used to make convertible bonds and some of my time was spent answering questions about what happened to things upon Events. The most popular was: what happens after a merger? If you have a convertible that converts into 10 shares of XYZ stock, but now XYZ is being acquired and each share of XYZ is being acquired for $30 in cash and 4.5 shares of PQR stock and a pony – what happens to the convertible? And the answer I would give usually started with “don’t trouble your pretty little head about it.” Like, it’s fine: you have a convertible that converts into 10 Things, and before the merger each Thing was an XYZ share, and after each Thing is exactly what an XYZ share transformed into, so you convert into $300 and 45 PQR shares and 10 ponies. It just works because it has to work. Economic interests follow without interruption from changes in form; derivative securities poof into derivatives of things that the underlying poofs into. There is no arbitrage!

    That assumption is central to doing any sort of derivative work, and it spoiled me a bit. Sometimes people would come up with more complicated scenarios involving dividends, multiple-step transactions, weird splits and spinoffs and sales, etc. etc. And I would generally start from the bias “it has to work, so I am sure the document written in the way that works.” Where “works” means “the economics and intent of the trade are preserved after the change in form.” But of course the document was written by humans, often specifically me, and those humans, often including me, are fallible. So there may well be documents from my former line of work that don’t “work” in the sense that an issuer could do some structural tricks that would screw holders out of their economics – where the derivative doesn’t follow the underlying everywhere it might go. These tricks are unlikely enough that I don’t lose sleep over them. You can’t predict everything.

    I sort of assumed that Greek CDS also had to just work but here is Felix Salmon at Reuters saying no. Lisa Pollack at FT Alphaville said something similar a week ago but I could not fathom that she meant it so I read it to mean something else. But she means it, and Felix does too. Go read it but the basic gist of this theory is:

    / Mar 1, 2012 at 2:05 PM
  • delphi


    Greek CDS Would Be Fine If People Would Just Leave It Alone For A While

    Somebody once said that “The Greek CDS situation is sort of puzzling, but it’s possible, […]

    / Feb 28, 2012 at 7:08 PM
  • News

    One Last Greek CDS Post Before It All Goes Poof

    One of the side benefits of Greece taking whatever somewhat irreversible steps it is now taking is that something will happen to CDS written on existing Greek debt and that will mean that we can stop talking about what will happen to CDS written on existing Greek debt and start talking about more interesting things like quasi-CDS written by the EFSF on shaky Eurozone government debt.

    For now, though, we’ve got at least a few more weeks of surprisingly and unsurprisingly ill-informed fretting that triggering the $4bn of Greek CDS will Bring Down The Entire Global Financial System. That seems sort of silly because notionals aren’t that big, mark-to-market collateral is mostly being posted, and at this point the marks are pretty close to what you’ll get from Greece so it doesn’t look like there’s tons of unknown unrecognized losses lurking out there.

    On the other hand, we’re mostly through with the speculation that not triggering Greek CDS will Prove That CDS Is Worthless and thereby Bring Down The Entire Global Financial System, so that’s nice. The reason that’s mostly over is that it sure looks like Greek CDS will in fact trigger, as Athens has moved to adopt a collective action clause that will flip the Greek restructuring from “voluntary, heh heh heh” to “involuntary” and thus trigger the ISDA restructuring event definition. You can argue that the mechanics of the cash settlement auction will mildly screw CDS holders but I’m not so sure, and in any case this is pretty solidly in the category of derivatives nerdery rather than Bring Down The etc.

    / Feb 22, 2012 at 6:29 PM
  • News

    Jerks To Get Paid More Than Nice People

    No, not your comp, though probably that too. The Times and the Journal check in […]

    / Jan 10, 2012 at 7:16 PM
  • News

    The SEC Wants Banks To Tell You Where They’re Hiding Their Terrible European Exposure

    You can’t argue too much with the SEC’s gentle suggestion that maybe banks should tell […]

    / Jan 10, 2012 at 1:18 PM
  • News

    It’s Not So Easy To Get Away From This Voluntary Greek Bond Swap

    Bloomberg reported today that, back in July, David Einhorn and some other people decided that […]

    / Dec 16, 2011 at 1:23 PM
  • News

    New Report Features CDS And Shadow Banking, Is Not In The Sunday Times

    Here is a wonderful sentence: A key insight from the enhanced BIS credit derivatives data […]

    / Dec 12, 2011 at 3:12 PM
  • CDS

    The New York Fed Is Not Buying Any Crazy CDS Conspiracy Theories

    I have a hazy memory of those exciting days in 2008 and 2009 when the […]

    / Nov 23, 2011 at 2:31 PM