Derivs - Credit

A London hedge fund has put on a butterfly trade based on the iTraxx Main three to seven year section of the yield curve, going long risk at the five year point, and short risk the three and seven year points, to play the recent divergence between the three-five-seven year butterfly and the market levels.

For anyone who works outside the rarefied world of financial markets, Markit might sound like something an errant tomcat gets up to. But after listing his company for $1.5bn on Nasdaq in June just eleven years after founding it in his garden, CEO Lance Uggla is unlikely to be suffering much angst about his choice of name.

Buyside firms are concerned that some swap execution facilities (SEFs) may make certain derivatives instruments made-available-to-trade (MAT), which competing SEFs or clearing houses will not have the ability to support, therefore negatively impacting the portfolios that they manage.

The Bank of England is to provide a liquidity back-stop to central counterparty clearing houses and brokers deemed critical to the stability of the UK financial system, shoring up so-called ‘too big to fail’ clearing houses in times of crisis.

It is apparent to all market participants that volatility, so long dormant during the quantitative easing-saturated era, has returned in recent weeks.

Hedge funds and real money players have been snapping up payer spreads on iTraxx Main following the Bank of Japan’s unexpected announcement that it would increase monetary stimulus spending, resulting in a steepening of the payer smile.

Overall credit default swap notional that was reported to swap data repositories last week decreased by 21% from the previous week, according to data from the International Swaps and Derivatives Association. Overall interest rate derivatives trading that was reported, also saw a decrease of 17% from the previous week.

Hedge funds are looking at negative basis trades to hedge long beta exposure exacerbated by the prospect of further intervention from the European Central Bank, according to strategists at Citigroup.

James Cawley, founder and ex-CEO of Javelin Capital Markets in New York, has joined BGC Partners as CEO of its swap execution facility, also based in New York.

Javelin boss to run BGC's SEF - Deutsche appoints UK corp fin head - McGuire out of StanChart loans - Cornelius quits Jefferies

Jefferies has lost its head of sterling credit sales.

The dust is still settling from the results of the Asset Quality Review and bank stress tests, but it seems clear that the catharsis European officials hoped for has not materialised. The AQR, in particular, was worthwhile and bank balance sheets are more transparent. But it doesn’t follow that Europe’s banks will now embark on a lending spree. Lack of demand remains the underlying problem, which could present a challenge for Monte dei Paschi di Siena. Meanwhile, deflation looms — a scenario, incidentally, that the stress tests didn’t consider.