CDS Market: Still Growing But…
In the second half of 2007, multilateral terminations of CDS contracts almost doubled from $3.2 trillion in the first half.
From the BIS:
Notional amounts of CDSs continued to expand by 36% in the second half of 2007, although the growth rate slowed from the 49% recorded in the first half of the year.
The breakdown by counterparty showed that CDS contracts with insurance firms recorded a high growth rate (46%), along with contracts with banks and securities firms (44%), although the share of insurance firms was still very small (0.8% of all trades). Insurance firms sold $319 billion of the
protection bought, and purchased $166 billion of the protection sold by the reporting dealers. In the second half of 2007, insurance firms showed a high growth rate (89%) as purchasers of the protection sold by the reporting dealers.Gross market values of CDSs recorded a growth rate of 178% in the second half of the year, much higher than the 53% from the first half. This unprecedentedly rapid growth presumably reflected a substantial increase in insurance prices on CDS contracts as measured by CDS spreads in the second half of the year. This increased valuation of existing CDS contracts, amid the turmoil in global financial markets. By counterparty, CDS contracts with insurance firms expanded at the very high rate of 597%, followed by 225% for contracts with banks and securities firms.
BIS: OTC derivatives market activity in the second half of 2007
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