PrefBlog

Bloomberg reports that the CDS Clearinghouse will be running by Christmas. The New York Fed issued a press release lauding the plan which includes links to various documents. Of particular interest is:

Incorporating an auction-based settlement mechanism into standard credit derivatives documentation by the end of 2008 to increase the certainty of a transparent and orderly settlement process following a credit event

From the Supplement to the Participants’ Letter:

In relation to the process of incorporating the auction mechanism into the ISDA Credit Derivatives Definitions, ISDA reported to supervisors at the June 9 meeting that the working group had taken the decision to move forward, as a first step, with that part of the hardwiring process that will have the greatest impact in a relatively short timeframe. The group will therefore first focus on an Auction Supplement that addresses “Failure to Pay” and “Bankruptcy” Credit Events in respect of North American and European corporates, leaving “Restructuring” Credit Events to be addressed at a later date. A separate working group is addressing the settlement of potential monoline defaults in parallel.

It remains to be seen just precisely how the auction mechanism might work. The question of short squeezes upon a credit event has been previously discussed (update of 2008-3-30); there must be some wiggle-room for protection buyers to delay delivery, otherwise the entire process becomes de-linked from the actual market.

CMHC has announced:

that the Canada Mortgage Bonds (CMB) Program will be expanded to include a CMB with a 10-year maturity.

The CMB Programme buys NHA MBS, which are like American RMBS and finances them (until now) with 5-year paper. The CMHC’s description of this programme is notable for its use of the word “funged”, which is presumably the verbification of “fungible”. The CMB is distinct from the MTN programme which finances training camps for criminals political feel-good projects social housing.

Another solidly up-day for PerpetualDiscounts, again on light volume. For the month, they’re down 3.34% and closed yielding 6.32%, or 8.85% interest-equivalent at the 1.4x conversion factor. Long corporates continue to yield 6.2%, so the PTIE spread is +265bp … well down from the highs, but still well above the previous 10-year peak.

There were eleven other index-included $25-pv-equivalent issues trading over 10,000 shares today.

This entry was posted on Thursday, July 31st, 2008 at 9:16 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.