What Could have Happened at JPM

Well for once we don’t have to talk about Spain or Greece.

This is the end of synthetic CDO’s and may well be the end of CDS as an OTC product, but we have time to look at that later. There will be a lot of information and misinformation out there.

For now, the key is what is this going to do for the markets.

As best as I can tell, they were generally short High Yield risk. They were mostly short tranches, mostly in off the run, and had some curve trades on.

Against that, they were generally long IG, mostly tranches, mostly IG9, and had some curve trades on.

The positions, if we ever find out exactly what they were, are complex. At some level this disclosure has something to do with mark to model. Gp

So HY17 is lower on the quarter. If they were short, they should have made some money? Strange and in any case, a relatively small move.

IG9 10 year is wider. Was out 15 bps since the end of the quarter, from 112 to 127.

To lose 2 billion on a 15 bp move, that would be about 275 billion of notional equivalent.

Scary, but something very strange has gone on.

E-mail: tchir@tfmarketadvisors.com

Twitter: @TFMkts