Credit Default Swaps

Quote from Sponger:

I asked this question before in another thread, didn't get a good answer, so I'll ask on this thread:

ChiBondKing, you are in the know on this, so:

I want to place a trade that credit spreads are going to blow out.

Is there a way for the individual trader to make such a bet easily?
More...

A good place to look would be the CBOT...

10Y futs with a 10Y Swap...

http://www.cbot.com/cbot/pub/page/0,3181,1175,00.html

this might be helpful to you to read these documents as well... If you have any more questions about the Swap vs TY, send me a PM.

and..

http://www.cbot.com/cbot/pub/page/0,3181,1176,00.html

these are going to be the best bet, from a retail perspective on playing the corporate credit spread in the 10Y (benchmark)

what's your view on the overall corporate bond sector? Do you think that we're going to expand further from the benchmark "risk free rate" or contract?
 
Thanks for the heads up ChiBondKing

Ok, for what its worth......

Prior to today's global financial market turmoil, I was worried about the lack of risk that was being priced into the credit markets. Credit spreads were ridiculously low. Couple that with the potential for a massive derivatives implosion, and things were not safe to begin with. On top of this, you have the "currency carry" trade that everyone has been doing. Are we going to see a massive unraveling of that trade at some point? And what are the consequences to the markets?

Then sub-prime finally implodes. Then today's global equity sell-off hits. Bonds go crazy, commodities go crazy, currencies go crazy. All markets affected - everyone was too complacent about risk. Maybe its just a correction, maybe not. Now I'm more worried than before. I was involved in the fixed income markets when Long Term Capital went down - the credit markets were ugly - everyone thought the systemic risk from the derivatives market was going to cause the whole financial mechanism to come crashing down - and it almost did - until the Fed and the Street agreed to bail them out.

Wall Street didn't learn the lesson of LTCM. There is more risk than ever in the entire credit and derivatives market complex - and its global. Bailing out one firm is easy - but who is going to bail out multiple firms?

For those of you who don't know how big the derivatives market is, and why this issue is important, look up the term "off-balance sheet". Everything is tied together in the markets - pull the string in one sector, and it moves the whole web. And that's what makes the game exciting.

Is the liquidity in the markets enough to keep spreads tight - or are they going to "revert to the mean"?
 
Check the vix and vxn tomrrow.

LTCM happened no one was wigging too hard early...then volatility explosion.

If you are short gamma or vega, or have no idea what that means, like Yu Dee Chang, good luck. And remember, short preme will always eventually kill the dream.
 
what comfort.....the NYSE imposed trading collars and then completely screwed the "reopen"...I mean how much cash did they drop on that system??

and Thain was walking around with his thumb in his ass....

so what hope is there for some OTC butterfly unwind...


sleep tight..............
 
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