Con-tango

CDS ramblings

Central banks supply $$ brooms
to remove toxic waste

As we learn from the DTCC that CDS total volume has been clearing at an average $5 trillion monthly pace over the last 4 months, it makes me wonder in awe at the incredible pain that must’ve been exerted on the sellers, since their out was to buy what I assume (from the Lehman auction) outrageously expensive CDSs.

Although I read that bond payouts have ranged from 60 to 91 % of the debt insured, I’m sure there must’ve been some wild and crazy transactions going on over the last few days, which spilled and also fed themselves from the underlying bonds and stock prices.

Apparently, the bleeding in the stock markets has stopped, which should also give a breather to the credit default market participants, by reducing the CDS prices, which coupled with the unabated support in credit from central banks worldwide, should remove at yet a more hastily pace the unwanted culprit CDSs.

I would also assume that the most worrisome or potentially harmful $27 trillion in CDS outstanding were removed first (since the December $62 trillion). So, it may well be, that if we see a pause in market deterioration, a good percentage of the remaining $35 trillion CDS outstanding may be recategorized as healthy debt and not prone to seller payouts.

In other words, the credit bleeding could be a trickle, if not ending soon, altogether.