Wednesday, March 11, 2009

Credit Derivatives, Tick, Tick, Tick

Counterparty risk reached a record level on March 9, according to Credit Derivatives Research. Structured Credit Investor reported:

Counterparty risk among the world's largest derivative market makers has risen by 75% since the start of the year, with the bulk of the rise coming in the last three weeks.

The perceived risk of failure among the major OTC derivative market makers is in its highest percentile.

Citi and Barclays credit risk worsened, even as their stocks rose in value. Citi traded at 600 bp, the widest of any time in the index.

With credit derivatives worsening, two questions remain. One, credit default swaps signaled the September economic meltdown. What do they portend now? Two, taxpayers funded $50 billion in counterparty unwinding at AIG. How much is left?