Mar 17, 2008
Credit Default Swaps in Today’s Markets
With today’s news regarding the Bear Stearns buyout, the markets were certainly volatile, with some large sell-offs for Lehman Brothers (LEH) and MF Global (MF). I was more interested in the performance of the credit default swaps that are held in the portfolios of Odyssey Re (ORH) and Fairfax Financial Limited (FFH). So far things are looking good and we should see both of these companies thrive as a result of the current turmoil.
Thanks to Barminov from the MSN BRK Board for posting these figures:
I would also suggest that you visit Nick Nejad’s blog, Rational Angle to see more information pertaining to the credit default swap portfolio held by FFH, and a nice graphic of their price movements.
hi, are names like HanoverRe. and Barclay’s liquid and deep?
Not sure what you mean by deep but Barclay’s indicated that they might try to buy some banks that are in trouble at the moment, so they may be well equipped.
sorry, meant the names. you offer quotes, so i thought maybe you may have a read on their volume + liquidity. also how large a position (depth) can be taken ?
trade single-names or the index (CDX) ?
Oh, sorry about that. I thought you meant the company’s stock, not the credit default swaps. To be honest, my exposure to credit default swaps has been only through Fairfax and Odyssey Re, so I’m not much of an expert about their liquidity or volume. I don’t have any exact information on the liquidity or volume for Barclays or HanoverRe, if you’ve got access to a bloomberg terminal you probably could find that.
But in general, I found this -
David Brickman, head of European credit strategy at Lehman Brothers, said: “Generically, trading volumes [in credit derivatives] are a lot lower than they were in the summer.
“The theory is that if people can’t trade bonds, they’re going to go to CDS [credit default swaps]. But in an environment like this you can’t get liquidity on single-name CDS either. That just leaves the indices.”
This would make me think things have slowed down (in terms of liquidity and trading volume) in the CDS market, I know that the prices have come down since February.
Sparsely have access to Bloombg data. but get realtime / price discovery from ‘Reuters3000 Xtra’ ,now and then. You trade? why can’t i find blogs of folks who trade pure Credit. Sure it’s private, but anyone saavy can participate. Some market forces are clear, simple, easy to exploit. When there’s discovery in liquid names –unlike situation you mention above where broad / systemic liquidty drys up–anyone can trade flow (directional account).
the market just reached a notional $58 trillion from $46t a year prior. that’s not all ‘smart money’.