Is the CDS risk passing?

Is the risk stemming from credit default swaps (CDSs) passing? Business Week weighs in with an article noting data from the International Swaps & Derivatives Assn. that says $25 trillion in notional value has been taken out of the CDS market since the beginning of the year. That amounts to a 25 percent decline from the $62.2 trillion peak. At the same time, progress is being made on a CDS central clearinghouse, something we've been discussing at length.

All of this bodes well, but the real worry right now centers on so-called synthetic CDOs, which invest in credit default swaps, not asset-backed securities. We've noted as of late there is real worry that a wave of corporate defaults could trigger the same reaction we've just suffered through in cash CDOs. The high-yield market is ailing, to say the least. Still, any progress on derivatives exposure is welcome. We're hardly out of the derivatives woods, but we're not completely stuck in the mud.

For more:
- here's the article

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