Izzy Kaminska cleverly argues that Swiss bonds are now Giffen goods — FT Alphaville
Why did Gretchen Morgenson write that column on Sunday about Greek credit default swaps? The answer is that the irresistible lure of writing about CDS lured her into the very murky waters of the Greek basis trade — the trade where you own Greek bonds and then hedge them by buying credit protection on Greece. Now this trade is emphatically not a big deal even in the context of the Greek debt restructuring: it’s probably a couple of billion euros in total, and won’t make much difference either way. But the outcome of the trade is likely to set an important precedent for the sovereign CDS market more generally, so it’s worth looking in a bit of detail at exactly what’s going on here.
Mark Gongloff finds this astonishing chart in a Morgan Stanley note this morning. It shows the degree to which hedge fund returns, in aggregate, are correlated with our old friend the S&P 500. And it turns out that even though the correlation has never been higher, it’s still somehow rising.
Why oh why does Gretchen Morgenson insist on writing about credit default swaps as though she understands them? She’s done it again today, with an article about Greece which ratchets the conspiracy theorizing up to frankly bonkers levels: