Follow the blog live today to see what the market thinks of the Credit Suisse-UBS deal. We will also be following other banking CDS (Deutsche amongst others….) to monitor any potential contagion.
We have already had the first Credit Suisse CDS trade of the day:
Whilst last week saw anything from 25 to 44 trades each day, a “normal” day would typically see less than 10 CDS trades vs Credit Suisse reported.
Looking at the details of the trade today:
- EUR4m notional
- Traded at 06:30 UTC (so v early in the day)
- No price reported
Looking at Friday’s trades, it has sadly been quite common for the price fields to be left empty:
- Out of 36 trades, only 3 trades included any price information.
- A lot of trades are above the USD5m/EUR4.7m block threshold.
- Given prices are currently quoted in upfront premium amounts, I can see some logic why trades above the block threshold would not reveal the full payment amount, as it could potentially indicate the full size of the trade.
- However, we see plenty of trades in lower sizes (hardly surprising). These trades have no price info either.
We will continue to monitor the data…..
We have so far today seen trades in:
- UBS – 1 trade, above cap size, no price info
- Deutsche – nothing yet
- Commerz -1 5Y trade, above the $5m cap size, but with an upfront payment of EUR565,305.
I guess a lot of XVA desks will be busy today looking at their credit exposures as Rates move. We didn’t really have that dynamic back in 2008….!
SDRView Pro also monitors trading in CDS Indices in real time. This is going to be where the real transparency lies today, and the markets are active in European Financials:
Bloomberg SEF saw a particularly large trade about an hour ago in the iTraxx European Senior Financials:
High of the day so far at 140.74 basis points and above the cap size….
Prices have since moved lower to around 127 basis points last..
6 trades so far in Credit Suisse:
Just two trades in UBS:
But we’ve now had six trades in Deutsche:
There is very little price info on those reports, but we note that:
- Credit Suisse 2Y traded for EUR95,491.07 upfront on the capped notional size. Difficult to know what to make of that payment when the 4Y traded at €1.24m on Friday and the 6 month at EUR884k. All of them are reported at the cap threshold, so difficult to say whether these amounts are being scaled for the true notional or not. Transparency is difficult to claim in this case!
- Deutsche 4Y traded for EUR88,240.65 upfront on the capped notional size.
- Commerz 4Y traded with a fee of EUR565,305!
The index spreads have come down significantly since this morning, last trading at 115 basis points. Positive signs?
The good news;
- There have been 14 trades today in Credit Suisse CDS.
- For UBS, across today and the weekend, there have been 8 trades.
- Deutsche has seen 7 trades.
The bad news;
- Very few trades have meaningful price information attached.
- Most trades are reported at the capped threshold amounts.
As a result, this is not one of our more successful attempts at shedding light on financial markets via the blog. We need meaningful transparency to make markets work. Whether that is via frequently traded, highly liquid index trading, or periodic, less liquid single names.
Yes, it is reassuring to know that during times of stress activity is continuing to take place. But we need to know more about the trades. Why are so few price details actually divulged?
The activity in indices is the best indication we have today of how markets have evolved. From a high of 140 basis points in iTraxx European Financials, we last traded as low as 110bp:
Well, I’m not sure I would count this as a 100% success. What did we learn about the transparency on offer here for certain single name CDS?
- The activity in Credit Suisse CDS was lower than for most of last week, recording USD77m in activity across 21 trades:
- Only 5 of those trades had “Payment Amounts” attached to them.
- Half of them were cleared though! We may get more transparency via the CCPs themselves in this case.
- Activity in UBS was even lower, with only USD38m equivalent trading across the weekend and yesterday.
- We really wanted to monitor whether this trading activity would indeed reflect an increase of 100bp in their CDS spreads that was muted in the original merger offer.
- However, only one of these trades had any price information attached to it.
Whilst certain areas of the market are liquid and well reported, such as CDS on Mexico…
…there is clearly work needed on the reporting side to make single name CDS data more transparent.
It did at least serve to highlight how rich the data is on the Index side, with us able to monitor activity in the iTraxx European Financials indices throughout the day: