CDS market

Yesterday, investors were offered detailed information regarding the Credit Default Swap (CDS) market. Much has been said about these Over the Counter credit derivatives, but little has been shown. In a effort to boost transparency over the CDS market, the industry's watchdog, the Depositary Trust & Clearing Corp has released statistics on the notional and net amounts involved within this trading segment. The information that has been published will allow some fears to subside and are a clear example of the benefits associated to increased transparency in the marketplace.

The notional size of the CDS market is now $33.6 trillion. Before Lehman's collapse, it had been quoted above $60 trillion. The notional amount refers to the overall face value of all trades. However, because many trades cancel out each other - for every buyer there's a seller - the real value at risk is just $183.3 billion (5% of the notional amount). Still considerable, but hardly catastrophic.

Amongst the individual wagers put on by investors, there seems to be a deep concern regarding Spain's and Italy's sovereign debt in which investors have protected against defaults worth $16.7 billion and $22.7 billion respectively. And also, there's a special degree of caution regarding Deutsche Bank's creditworthyness which has led investors to protect against a default risk valued at $12.5 billion.