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The bankruptcy of Detroit brings new pressure on municipal bond investors and related exchange-traded funds like (HYD) (NUV) (PML) (PZA) (IIM) (NIO) (VMO) specializing in municipal bonds to heighten risk management and to hedge where appropriate. One potential tool in that regard is the single name credit default swap market, which is featured almost constantly in discussions of municipal entity credit risk. A recent example is “ Traders Find Short Bets on Puerto Rico a Challenge,” a Wall Street Journal blog. The author notes.

“Default insurance on Puerto Rico, sold in the form of derivatives called credit-default swaps, is available from few dealer banks. The contracts also have barely traded because the protection is not available to buy in meaningful amounts and disclosures from the Commonwealth have been limited, some market participants said.”

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A number of authors have suggested that credit default swap pricing be used as a basis for setting deposit insurance premiums for banking firms. We re-examine this proposal in this note, the fifth of a semiannual series of reports on credit default swap trading in U.S. bank and bank holding company reference names. This note updates the prior Kamakura Corporation report on credit default swap trading on U.S. banks for the 207 weeks ended December 26, 2014. We find that MBIA Insurance Corporation and Bank of America Corporation were the institutions traded most heavily in the credit default swap market over the 2010 to 2014 period. This updated report also confirms the conclusions of the five prior reports: that there is trading only in the largest or most troubled bank holding companies in United States and that the credit default swap market does not provide a credible basis for pricing deposit insurance of U.S. banks.

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We previously analyzed the trading volume of credit default swaps on international bank reference names on July 14, 2014 for the 207 weeks ending June 27, 2014. This note updates that analysis for the 233 weeks ended December 26, 2014. Of the 1,239 reference names on which credit default swaps were traded during this period, 113 were “international banks,” which we define as a non-U.S. financial institution. Out of the 198,089 observations reported by the Depository Trust & Clearing Corporation, there were 16,349 weekly observations in which an international bank had at least 1 credit default swap traded on its name.

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This analysis is the third in a series analyzing the trading volume in single name credit default swaps for the 233 weeks ended December 26, 2014. In this note, we focus on trading in 1,041 non-bank corporate reference names. The highest non-dealer trading volumes are found on “story credits” like J. C. Penney (JCP), Caesars Entertainment Operating Company, Inc. (CZR), Eastman Kodak Company (KODK), RadioShack(RSH), and Arcelormittal (MT).

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Trading volume in the bond and credit default swap markets, particularly the sovereign credit default swap market, is one of the key drivers of profit for major dealers like Bank of America (BAC), Barclays Bank PLC, BNP Paribas (BNPZY), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), HSBC Holdings (HSBC), JPMorgan Chase (JPM), Morgan Stanley (MS), The Royal Bank of Scotland Group PLC (RBS), and UBS AG (UBS). This update adds some details to the nice Wall Street Journal study “Where did Europe’s Sovereign CDS Trading Go?” which analyzes the European Commission’s ban on the short sales of sovereign credit default swaps.

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