Derivs - Credit

Banks, notably in Asia, have been stung by recent high correlation between debt and equity, with collective losses in the billions of dollars as traders’ hedging strategies didn’t offset the huge risks on their books generated by structured product sales. The retail market had been loading up on investments that lost money for dealers when correlation spiked.

U.S. hedge funds, prop desks and real money accounts have been looking to European retailers this week, as names in the region caught up with already gapped out spreads on their North American counterparts.

Pilgrim’s Pride, the chicken and prepared foods company that filed for Chapter 11 on Monday, will not need a settlement auction because credit default swaps on the name were virtually non-existent.

The so-called breakeven default rate for the iTraxx Crossover is now 47% for its constituent names, after the index blew past 1,000 basis points for the first time earlier this week, according to BNP Paribas analysis.

Derivatives trading and sales executives at global investment banks can expect bonuses up to 50% lower than those from last year. That’s the view of Eric Moskowitz, head of search firm the Options Group’s compensation consulting practice.

Credit Derivatives Research has unveiled the first rollover of its Counterparty Risk Index.

Markit’s iTraxx Crossover, an index of 50 of the most liquid sub-investment grade names traded in Europe, broke the 1,000 basis-point barrier for the first time today.

The iTraxx is de-correlating from U.S. Treasury yields as concerns grow about deflation, but investors are not believed to be looking to arbitrage the move.

Morgan Stanley is advising investors to play the slump in the Australian economy by going long a basket of credit default swaps on banking names, while shorting domestic- cyclical corporates including airlines and packaging companies.

Street talk of an expected USD2 billion write down by Goldman Sachs this quarter related to private equity and commercial real estate investments was not enough to move credit default swap spreads on the name much today.

Credit default swap spreads can be used as a predictor of short-term changes in a company’s share price, according to new research from the Royal Bank of Scotland.

Five-year credit default swaps on the Harrah’s Entertainment principal operating subsidiary jumped nine percentage points today to 68.8 points upfront, after the company announced it had delayed the early deadline for its voluntary bond exchange offer.