Top 20 Credit Default Swaps By Net Notional Exposure

Interesting chart from Paul Kedrosky’s “Infectious Greed” Blog, depicting the “net notional” and “gross notional” credit default swaps (CDS) exposure for various countries and companies.

Courtesy of Infectious Greed

So you’re aware the “net notional” reflects the net amount of debt being covered by various CDS, after adjusting for hedges, longs, shorts, etc. The reason for this is that people often hedge their CDS positions, and/or you have situations where party A owes party B $10M, and is also owed $15M by party C, thereby nullifying the amount of net risk involved. Of course that scenario assumes that party C has the money to pay party A, and/or isn’t depending on a soon to be insolvent party D as the source of the funds with which to service its debts.

E.g. the net notional exposure may very well be significantly higher than what is indicated here, when you consider that many of the counterparties may be in financial trouble and there is good reason to be suspcious of the models and underlying assumptions that have gone into any derivatives contract written over the past 10 or so years.

Needless to say the situation around CDS definitely needs to be looked at in more detail.

Either way, very interesting data and you can find more of it here.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

Posted in Categories: Contributor, External Research, Financial, Stocks.

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