BIS figures show continued decline of CDS market

The Bank for International Settlements has today released semiannual statistics for end-December 2008 showing that the volume of outstanding credit default swap contracts fell by 27% to $41.9 trillion. Single-name contracts declined by 22.8% to $25.7 trillion while multi-name contracts, including indices and index tranches, saw a decrease of 32.7%, to $16.1 trillion. The overall derivatives market (including other types such as interest rate, foreign exchange and commodities) declined for the first time on record.

Despite the lower outstanding volumes, the gross market value for CDS contracts increased by 78.2% to $5.7 trillion as a result of the credit market turmoil. Gross market values grew 95.6% to $3.7 trillion for single-name contracts and 52.5% to $2 trillion for multi-name contracts.

Greater use of multilateral netting during the second half of 2008 resulted in a change in composition across contract types. Amounts outstanding of multi-name contracts fell 32.7% to $16.1 trillion, while the 22.8% decline in single-name contracts to $25.7 trillion was somewhat smaller.

The composition across counterparties also changed during the second half of 2008. Although the amount of CDS contracts between reporting dealers declined 24.4%, this was smaller than the 29.8% decrease in outstanding contracts between dealers and other financial institutions and the 47.7% drop in contract volumes between dealers and non-financial institutions.

Developments in gross market values across counterparties reflected the uneven declines in the outstanding volumes for the different market segments. The market value of contracts between reporting dealers grew by 89.3% to $3.2 trillion, representing 56.2% of the total market value of outstanding CDS contracts. The market value of contracts between reporting dealers and other financial institutions increased by 66.3%, while the market value of contracts between dealers and non-financial institutions was 51% higher.