Forget, for a second, the lovely mid-November golf weather in New York this past Sunday. The real treat last weekend was an article in Saturday’s New York Times. It was called “A Big Market, But Not Necessarily Dangerous” and it was written by Times veteran Floyd Norris.
The article is about the credit default swaps market, and it explores recent activity in sovereign CDS. As it does so, the article references information about trading volumes, risk exposures and CDS premiums – information that is available from a variety of sources.
Accompanying the articles is a series of charts that compare 10-year bond yields, CDS prices, CDS notional outstanding and weekly CDS notional trading volumes for Italy, Spain and France. The charts graphically display the thrust of the column, as encapsulated in the caption: “As worries over the safety of some European sovereign bonds grew this year, volume in credit default swaps rose sharply, particularly in September. But the changes in net contracts outstanding rose at a much slower pace.”
We like the column for three reasons. First, there’s the headline. Given today’s press coverage of derivatives, “Not Necessarily Dangerous” is a ringing endorsement. We had, in fact, considered it as part of our new logo but ultimately decided on “Safe, Efficient Markets.”
Second, and more seriously, the article is factual. The Times (and Mr. Norris) might disagree with our conclusion here, but the column shows that an awful lot of information – prices, volumes, exposures – is in fact available on this market. It’s true that not all of this information might be available to the average person, but the swaps market is, after all, an institutional market. Market participants have price transparency and access to data.
Third, the article does more than string together a series of quotes from a select few “independent experts” who can always be counted on for a critical quote. It weaves together facts and data to tell an interesting story.
We can’t wait for next weekend.