Good morning

We wrote about 10-year German swap spreads turning negative for the first time in history

What's driving it and why it matters 🧵

ifre.com/story/4954876/… Conventional wisdom holds government bonds trade at a premium to swap bc of the higher credit risk facing a bank as swap counterparty

But market dynamics play an important role too

US and UK swap spreads first dipped below zero in the aftermath of the 2008 crisis

🚨🚨CDS on Credit Suisse fails to trigger - again 🚨

No bankruptcy credit event, DC rules

ifre.com/story/3927817/… Another 11-0 unanimous vote against a trigger

Second time in less than a week a Credit Suisse CDS question has been voted down

Will this draw a line under the whole affair?

Link to the decision: cdsdeterminationscommittees.org/documents/2023…

NEW: Credit Suisse saga exposes CDS market's creaking infrastructure

Whatever happens w/ Credit Suisse CDS, the affair shows how thinly-staffed the Determinations Committee has become

Last week set a new low in DC voter turnout for a major credit event

ifre.com/story/3925487/… The Determinations Committee is a critical part of infrastructure underpinning the $10trn credit derivatives market

It's supposed to have 15 members

Only 11 voted against a Credit Suisse CDS trigger last week after CS abstained

So how did we get here, and why does it matter?

NEW: The fragility of Gilt markets in seven charts

We've written a LOT about Gilts lately, so we thought it was time for a more visuals-based approach to explain what's happened + the challenges that lie ahead

🧵

ifre.com/story/3562718/… Let's start with not one of our charts, but one from the Bank of England

The BoE has used a version of this in letters to MPs to help argue it was the government's fiscal policy that triggered the Gilt market meltdown

NEW: Derivatives clearing exacerbated LDI cash crunch, pension experts say

Pension funds don't have to clear swaps through central clearinghouses, but some opted to anyway

Here we explain how that intensified the LDI liquidity crunch story 👇 +🧵

ifre.com/story/3544414/… Pensions have lobbied to stay out of swaps clearing, mainly bc of liquidity risk concerns

Some still chose to clear to get better swaps pricing

Legal & General Investment Managers, one of the largest LDI players, has said it clears on behalf of pooled funds + some indiv clients

NEW: Commodity traders seek to ride out liquidity squeeze

Our deep dive on how commodity traders are handling an unprecedented cash call - and the profits that could await those who weather the storm 👇

ifre.com/story/3338439/… “Liquidity risk has always been and will always be the biggest risk for a commodity trading house," Trafigura's CFO tells @ifrtweets

Trafigura had a $10bn cash buffer going into the Ukraine crisis.

Like others, it has raised billions more to bolster its reserves

NEW: Dislocation in Russian debt prices suggests CDS won't work

There's a 30 point disconnect in implied recovery rates between CDS + bond markets

That reflects fears further sanctions could prevent CDS working if Russia defaulted on its external debt

ifre.com/story/3273632/… Russia CDS is trading very cheap to bonds at presents, suggesting a recovery of ~60% (vs ~30% for bonds)

That shows there's considerable uncertainty not just over recovery levels, but whether a conventional CDS auction could take place at all