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Dealer short-covering likely on recovery risk following GSE plan, says Barcap

Wednesday, September 10, 2008
Recent events surrounding Fannie Mae and Freddie Mac underscore the inherent recovery risk in off-market credit default swaps trades, says Barclays Capital in its latest research. Barcap believes dealers are largely short recovery of widened names and may look to hedge this risk. While for most names decreasing recovery rates as a result of higher defaults will be benign, for others high recoveries can ensue from fundamental and/or technical issues. Analysts note homebuilders, monolines and other financials are at risk.
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