ICE Link speeds up novation process

ICE Link recently announced a new Novation Consent = Confirmation (C=C) initiative which aims to make it easier for credit default swap traders to novate trades.

Sallie Mae keep falling

The CDS that is.

Citigroup, on Friday, officially agreed to sell its student loan business, Student Loan Corp, to Discover Financial Services and SLM Corp (Sallie Mae) as it continues to shed assets strengthen its balance sheet. Meanwhile, SLM credit default swaps have continued a tightening spree that began earlier this month.

Will investors prefer to rent or own Hertz swaps?

Late last week, Hertz Global Holdings, Inc. announced its revised merger/acquisition agreement to buy Dollar Thrifty Automotive Group for $50 per share. The original agreement was made in April at a price of $41 per share (~$1.2 billion) before Avis Budget Group joined the bidding war by making its own increased $1.35 billion cash and stock bid in between.

Collateralizing Credit Default Swaps

As the credit default swap market is an institutional-only market that requires margin-type accounts to take advantage of the benefits of leverage inherent in the contract, a vast majority (measured by number of participants – not necessarily by amount of money) of investors including retail investors and long-only institutional investors are often unable to participate in this market. The solution for these investors to bypass regulations or restrictions and enter the market is often found in what is called a credit-linked note.

Quanto CDS gaining significance in the Greek trade

What is better than buying credit default swaps protecting several million dollars of Euro-denominated Greek sovereign debt?

The role of Counterparty Valuation Adjustments (CVA’s) in rising sovereign CDS levels

A recent report published by the Bank of England (BoE) cites “increased hedging by CVA desks has been an influential factor behind these [rising European sovereign CDS price] moves.”

Potential Glencore and Xstrata merger poses CDS issue for investors

Rumours continue to swirl around the possible tie-up of Swiss commodities trader Glencore International and mining company Xstrata – which it already owns a third of. While a premium on Xstrata stock could be good for shareholders, Glencore CDS investors are wondering how that could impact their company’s use of debt in the future.

Opportunities still exist in negative basis trades

DerivativesWeek reports on recent research from Goldman Sachs credit strategist Alberto Gallo who calculates that the CDS-cash basis is now 0 to -50 basis points in the CDX North American index by asset swap measurements with pockets of CDS-cash basis that offer attractive returns.

An explanation of Credit Default Swaps (CDS) – Part 2

In part two of our explanation of credit default swaps, we provide an alternative analysis or framework for understanding CDS that revolves around its similarities and differences to traditional insurance products. While there are a few major differences between traditional insurance agreements and credit default swaps, it helps to initially understand similarities between the use and purpose of both insurance and CDS beforehand. Then we take a look at some of the common beliefs or misconceptions surrounding CDS and other derivative or financial products and separate fact from the fiction.

An explanation of Credit Default Swaps (CDS) – Part 1

Credit Default Swaps (CDS) can sometimes be one of the most confused and misunderstood financial products ever since their overly publicized role in the advent of the so-called credit crisis and the fall of large institutional firms such as AIG, Bear Stearns and Lehman Brothers. What exactly is a credit default swap and how does it work? Rather than concern ourselves with a myriad of technicalities and exceptions or into specifics of legal documentation, theoretical pricing models, statistical risk measurements or detailed trading strategies, we will try to focus on the big picture of what these products really represent and how they are making a difference in the evolving world of banking and finance.