Swap spreads are wider largely on a Moodys' report highlighting the Euro-banks risk from exposure to Eastern European bloc. As a reminder, swap RATES are where highly rated financial entities borrow from each other...the swap SPREAD is the difference between those rates and theoretical risk free levels.
Last week, asset backed spreads on highly rated credit card deals actually rallied by ~50bps on the Geithner speech. Apparently structured product investors were encouraged by the prospect of the TALF actually working.
Also last week, the credit curve normalized (i.e. steepened) a bit. This is a good sign....the primer on credit curves is here.
The WSJ has a good article on the struggle for hedge funds to obtain prime brokerage services. I'd do my best to continue to focus on the popular/crowded hedge fund trades in the market and watch them unravel.
This may be a stretch, but I've noticed something unusual in the DTCC data on amounts outstanding in credit default swaps. Credit default index tranche amounts outstanding have been increasing on a gross basis but decreasing on a net basis. This is a pretty specific/arcane part of the credit world that is the playground primarily for the hedge fund and dealer community. As the net outstanding falls, that tells me less players are involved....more signs of deleveraging in the market.
From the same data, tell me if you see a pattern....These are the top 5 highest amount of CDS outstanding versus real/actual public debt outstanding ratios (think of this as a 'biggest short' ratio):
BRK
PMI
MBI
MGIC
RDN
Hmmmm......
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