Derivs - Credit

New York State Insurance Department Superintendent Eric Dinallo said today his department has chosen to delay indefinitely its plans to start regulating covered credit default swaps—the part of the market it considers insurance.

Spreads on the European iTraxx main and HiVol indexes spiked to new highs yesterday as fears mounted over the future of the auto industry and weak financial data continued to undermine investor confidence.

Citigroup is recommending arbitragers short unsecured risk by buying credit default swaps and go long secured risk by selling loan only credit default swaps, while the cash loan vs LCDS basis is flat to positive.

Extreme divergences in the credit markets are throwing up opportunities in relative value plays--but cash-poor investors are struggling to get funding and trading remains light.

Credit default swap spreads on consumer lenders in Japan are still irrationally wide, with analysts at Deutsche Bank noting Takefuji and Aiful have been particularly hard hit.

Five-year credit default swaps on Ecuador spiked to 4,825 basis points today, or 62 points upfront according to Markit, after its government opted to use a 30-day grace period before repaying a coupon on a USD30.6 million sovereign bond.

As discussions about how to overhaul the credit default swap market progress, industry officials are thought to be considering two fixed coupons for non-distressed single names: 100 basis points and 500 bps.

Industry participants working on a clearing system for credit default swaps are considering doing away with ‘Modified Restructuring’ as a credit event trigger in North American single-name CDS.

According to this week’s report from the Depository Trust & Clearing Corp., the gross notional value of outstanding credit default swaps contracts has decreased over the last week.

JPMorgan is estimating a typical synthetic structured credit mezzanine tranche is trading at 30-40% of its 2006 value, and some are as low as 5-10%.

Markit has hired Sal Naro, co-founder of USD3 billion hedge fund Sailfish Capital Partners, in the newly created role of co-head of equities, commodities and risk management.

Credit default swaps are viewed as a surprisingly resilient type of derivative that will thrive despite expected regulation and a shift to more transparent pricing.