AnalystEgg

𝗪𝗵𝗼 𝗪𝗶𝗹𝗹 𝗕𝗲 𝗧𝗵𝗲 𝗢𝗳𝗳𝗲𝗿𝗲𝗱 𝗦𝗶𝗱𝗲 𝗶𝗻 𝗖𝗗𝗦? I traded CDS from the start in the late ’90s. Buyers were never the problem. Sellers were. 🧵 1) Banks hedged derivative counterparty risk and freed up RBC on undrawn revolvers, convert arbs hedged credit, and L/S funds went short. Long-only asset managers wouldn’t sell unless the basis was fat. 2) Synthetic CDOs fixed that. We built diversified IG CDS portfolios and got shadow ratings on the tranches. AIG FP and the ilk just wanted “high spread” for a AA or AAA. Then CDX tranching made sellers plentiful, and they were diamond hands who ignored marks. Volumes exploded. 3) That seller died in the GFC, and CDS volumes collapsed. Now hyperscalers and chipmakers want to issue $1trn of GPU debt, and the CDS bid is massive. Who sells? 4) Asset managers should sell at a positive basis, but they haven’t yet. Pod PMs are the offer, and they aren’t diamond hands. Expect a thin offer side, wider spreads, and more vol.​​​​​​​​​​​​​​​​ bloomberg.com/news/articles/…