As first pointed out here last week, IG9 10Y credit risk has pushed nothing
but wider since the JPM news broke. Between the size, common-knowledge, and
technical richness of the position, liquidity is providing its helping hand as
the legacy credit index is now 25bps worse than last week's lows (and
17bps worse than when JPM announced) - while the on-the-run IG18 is
only 10bps wider over this period. Extrapolating the $200mm DV01 we assumed from
the initial announced loss and spread movement, this is potentially an
additional $3.4bn loss for JPM already (who we can only assume have
been trying to unwind). Until the skew (the spread between the index and its
components) narrows further - which it is today (though momentum will take over
at some point in the index itself) - it is likely that the runaway
train will keep going and going, until JPM issues a formal announcement that
the firm is fully out of the trade, together with a final tally of its losses,
which will probably be double the reported loss as of
Thursday.
Here is the good news: we are 100.4% certain JPM was the ONLY prop trading bank to be massively, massively short IG9-18 into this epic blow out. Because if other had suffered billion dollar losses, they would all pull a Jamie Dimon and fess up. Right?
Here is the good news: we are 100.4% certain JPM was the ONLY prop trading bank to be massively, massively short IG9-18 into this epic blow out. Because if other had suffered billion dollar losses, they would all pull a Jamie Dimon and fess up. Right?
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