Credit Default Swaps

Quote from lescor:

I don't have quotes for cds products, but I watch corporate credit srpeads pretty closely.

LQD is a corporate debt etf. I watch the spread of it over IEF, which is the 7-10yr treasury etf.
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Thaks for the tip!

Interesting, I will add this to my montage and start tracking the spread.

nitro
 
Quote from ChiBondKing:

Here at Bear we get CDS from Bloomberg.

I have TW (tradeweb), but not Bloomie :mad:

I agree with makosgu, CDS does not to my knowledge have a correlation with futs.


Nitro, come out to one of the meets one friday (not this friday) and i'll give you a quick overview.
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Chi, I would enjoy that over a beer.

nitro
 
Quote from MichaelJ:

I think the nature of the CDS market is such that the futures will lead the CDS, rather than the other way around. At the very least, it would be simultaneous.

Example, worries about economic weakness will weigh on stocks and will increase CDS spreads. I don't think the lead/lag is exploitable except maybe by the desks that make markets in CDS.
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Quote from makosgu:

My current dayjob is entirely in this market (CDS, CDOs). It is the companies primary and sole business. However, I've never been able to associate futures (which I trade privately) with CDS. I understand a tremendous amount about CDS and the CDS market is highly dependent on news and rating agency credit migrations. Furthurmore, transacted spread levels are more difficult to come by since many transactions are made daily but go unreported to the market. Of course, with liquid names, the market for such instruments is readily available. I guess the question would be which CDS reference entity could be easily associated with the Futures Index?
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Quote from sle:

Mark Davies's group is very active in single name CDS, they are now merged with corporate desk, so the color on CDS direct from them should be pretty good.

As for being an indicator of any sort, the only time when CDS can really be predicting the movement in underlying company is when the company is already in it's uppers and the CDS are trading on expected recovery rate more then anything else. (*)

(*) Disclaimer: Take this with a brick of salt, since I trade rates, not credit.
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MichaelJ, makosgu, sle:

I saw this guy James Bianco on CNBC. He showed a chart of how the corporate spreads and the SP500 track each other pretty closely. He implied, at least recently, that the SP500 is playing catchup with widening (yields) corporate default spreads, e.g., GM paper. He has a website that I have perused. For example:

http://www.arborresearch.com/biancoresearch/redirectFromOldDomain.html (You need to go to products - I cannot directly link that)

I had never really considered this line of thought and wondered if someone here had done the research.

nitro
 
Oh, that's where you're going - GM is a very liquid name and people are tracking it rather closely. I'd not be surprized if every once in a while credit/paper market will be a touch faster then the equity market. It might be an interesting thing to look at - is there a lagged correlation between CDS spreads and equity/futures.
 
Been sitting here calculating the iShares credit spread (LQD/IEF) and it's correlation to the CBOT 10Y/10Y Swap (TED Credit Spread)..

If my calculations are correct, going back the past 90 days or so ( 1/25/05 - 4/22/05) we have seen a general tightening of the corporate spread. Anyone here with significant daily use of the CDS sector care to confirm this?

According to my calculations, the LQD/IEF spread has exhibited the following averages:

90D Average: 26.37
90D Avg Spread Change: -0.03

I broke the data I had into 4 segments, and looked at the LQD. I added IEF (relative value % on the chart), and according to relative value measures, from around 3/15/05 until 4/15/05 the IEF was 'lagging' behind LQD with respect to a relative change in price. The daily avg spread change during that period for the basis (if you will call it that) was -0.34

In summary, those who actually DO stare at the Credit spread mkt care to comment and verify/refute my hypothesis that the corp credit spread since Jan has seen a overall tightening?

Enlighten us. Share the knowledge, that's why we're here (most of us)
 
Quote from nitro:

I had never really considered this line of thought and wondered if someone here had done the research.

nitro
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I've found that credit spreads have a decent correlation with VIX/VXO/VXN; which makes sense intuitively. Since debt is senior to equity, if risk premiums on corporate debt are increasing in the aggregate; stock prices <i>should</i> be falling and, therefore, volatility rising.
 
this is the CDX Hvol NA series 3 (5-year)

one of the biggest indices for higher volatility investment grade credit spreads (over LIBOR, not treasuries)

2004 December was pretty much multi-year tight levels for credit spreads

GM & F blowing out recently is the catalyst for the increase


Quote from ChiBondKing:

Been sitting here calculating the iShares credit spread (LQD/IEF) and it's correlation to the CBOT 10Y/10Y Swap (TED Credit Spread)..

If my calculations are correct, going back the past 90 days or so ( 1/25/05 - 4/22/05) we have seen a general tightening of the corporate spread. Anyone here with significant daily use of the CDS sector care to confirm this?

According to my calculations, the LQD/IEF spread has exhibited the following averages:

90D Average: 26.37
90D Avg Spread Change: -0.03

I broke the data I had into 4 segments, and looked at the LQD. I added IEF (relative value % on the chart), and according to relative value measures, from around 3/15/05 until 4/15/05 the IEF was 'lagging' behind LQD with respect to a relative change in price. The daily avg spread change during that period for the basis (if you will call it that) was -0.34

In summary, those who actually DO stare at the Credit spread mkt care to comment and verify/refute my hypothesis that the corp credit spread since Jan has seen a overall tightening?

Enlighten us. Share the knowledge, that's why we're here (most of us)
More...
 

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Hmm. The swap spreads actually rallied in the past few months, first we went from 40 bps down to 38 but then to 44.5 in the past month. Similarily, bba credits rallied to like 110 from about 170 but then sold off a quite a few weeks ago back into lower 180 as GM story came up. that's what I see from were i sit.
 
My numbers were derived from the 'spread' of LQD vs IEF, the 2 equities.. I managed to log in and get some CDS quotes for today, man.. GM got a bit wider:

GMAC 1YR: 399 +67
GMAC 2YR: 494 +72
GMAC 3YR: 593 +77
GMAC 4YR: 622 +79
GMAC 5YR: 640 +80
GMAC 7YR: 656 +81
GMAC 10YR: 673 +82

GM 5YR: 838 +96

Looking at GM5YR, the Avg spread is 467.7.

At 3/31/05 the GM5 spread was at 460

Pretty amazing.

Thanks to the person who posted the CDS chart for 5YR index. That correlates to the data I have.

The LQD/IEF spread was the other person's idea, perhaps you can shed some light on your methodology.
 
MichaelJ-

I also noticed that KMG (Kerr-McGee)'s 5YR spread hit 200, avg for that is 77.3.

PXD (Pioneer Natural Resources) 5YR at 130, avg is 60.0

Those 2 names from the data I had as of 1:35PM EDT indicated no change in the spread of of that time, but still, a widening there. Perhaps some worry in the Oil & Gas sectors?
 
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