Credit-default-swap data ease only some worries

NEW YORK - New data on credit-default swaps eased only some of the market's worries about the magnitude of losses companies could suffer from the contracts, which are essentially insurance policies against bond defaults.

Investors remain concerned about the portion of the credit-derivatives market that the Depository Trust & Clearing Co.'s weekly data does not cover. Many of the complex products that led to the downfall of American International Group Inc. — the large insurance company that nearly failed before getting taken over by the U.S. government — are not included in the data.

"Overall, it's a very positive development to see some transparency in what was an opaque market before," Andrea Cicione, senior credit strategist at BNP Paribas SA in London, said. "We would like to see more data on the broader market, but it doesn't look like anyone's collecting it."

The DTCC said earlier this week that credit-default products that banks registered electronically at its warehouse totaled $33.6 trillion. That is down from about $44 trillion registered at the end of April, the DTCC said.

The difference between the gross notional amount of credit-default swaps and the net notional amount was particularly helpful for investors to see. The gross amount is the total amount of money involved in the trades; the net amount is how much a company would actually lose should the underlying debt go sour.

The top 1,000 reference entities had a gross notional amount of $15.38 trillion, compared with a net notional amount of $1.76 trillion, the DTCC said in its report released late Monday. Many investors had worried that the notional amount would be even higher compared to the gross amount, Cicione said.

Investors still feel somewhat in the dark, though, about the overall credit-default swap market — a market that also played a big role in driving Lehman Brothers Holdings Inc. to bankruptcy.

The weekly report falls short in two ways, Cicione said: it appears to only give the value at which the sales occurred, not the present value, and the data doesn't cover the entire market.

DTCC spokeswoman Judy Inosanto said that the company's warehouse does not capture the credit-default swaps on collateralized-debt obligations. That was a type of trading that AIG was heavily involved in. CDOs are financial instruments that combine various slices of debt, often including mortgages.

According to a survey by the International Swaps and Derivatives Association — which does include swaps on CDOs — the total credit-derivatives market was $54.6 trillion as of June 30. That was down from $62.2 trillion at the beginning of the year.

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