This note analyzes trading volume in single name credit default swaps for the week ended June 21, 2013, a week which saw Telecom Italia lead the corporate volume ranking with 247 contracts traded for $515 million. Brazil led the sovereign rankings with 795 contracts for $9.8 billion trading last week. The original source of the underlying data is the Depository Trust and Clearing Corporation, released today, at this link:
The purpose of this analysis is to bring greater transparency to the market for single name credit default swaps. We applaud the Depository Trust & Clearing Corporation for making available trading volume weekly since the week ended July 16, 2010. Most of the popular press and many data vendors report “CDS prices” without revealing the trading volume behind the “price,” if any. For example, two vendors report daily CDS term structures out to 10 years or farther on 2,000 reference names. An analysis of the actual data, however, shows that 87% of the actual CDS trades from 2004 to 2012 were approximately 5 years in maturity. Moreover, during the 129 weeks ended December 30, 2012, the average number of reference names traded weekly was 875, not 2,000.
We now report the results for last week. The table below shows the total number of contracts traded, the number of references names traded, and the daily average number of trades per reference name using two methods:
“Daily average trades per reference name” includes all trades, including those between two “dealers” as defined by the DTCC. The “daily average non-dealer trades per reference name” excludes trades between dealers as an index of true “end user” demand. To do this calculation, we use the dealer-dealer trade percentage of 75.68%, the percent of trades in the DTCC trade warehouse on January 4, 2013.
The top ten reference names traded last week are reported here:
Sovereign names continue to dominate the trade volume rankings. The number of sub-sovereign or municipal trading volume continues to be minimal:
The final table shows the distribution of reference names by number of contracts traded last week. The number of contracts traded is highly skewed with a small number of reference names experiencing trading volume of more than 50 gross contracts traded per week (that is, including dealer-dealer trades).
For more information concerning this week’s data, please contact the author at info@kamakuraco.com.
Past Trading Volume in Single Name Credit Default Swaps
In this section, we list studies of trading volume in the 129 weeks ended December 30, 2012.
All reference names
Sovereign CDS trading volume
Municipal CDS trading volume
U.S. bank reference names
International bank reference names
Non-bank corporate reference names
A review of historical trading volume should lead the careful analyst or trader to the conclusion that the market can be extremely thin and that one should not expect an easy exit from a position as credit insurance provider.
Donald Robert van Deventer