Glencore CDS Spike to Record

There still hasn’t been a major bankruptcy

By Christine Hughes, Canada. Chief Investment Strategist, OtterWood Capital:

Glencore is one of the world’s largest most leveraged commodity traders. It provides a pulse for what is going on at the top of the market. If these guys were to go bust, it would set off a huge chain of events that would be very negative for markets.

As fears mount over Chinese growth and commodities continue to roll over, Glencore’s credit default swap (CDS) spread hits a new record. Credit default swaps are contracts which are essentially insurance policies against borrowers going bust. And markets are betting one of the world’s largest commodity traders is at increased risk of default given the current environment.

There still hasn’t been a major bankruptcy in this commodity downturn. However, a couple of days ago, Sherwin Alumina Co., a US unit of Glencore, filed for Chapter 11, due to “challenging market conditions.” And this has left its imprint on the CDS:

By Christine Hughes, OtterWood Capital, who, in November when stocks were rallying while the Santa Rally was being promoted with all of Wall Street’s might, had said this, based on CDS spreads and the dollar: “Why We Aren’t Buying this Rally



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  3 comments for “Glencore CDS Spike to Record

  1. TheDanimal
    Jan 13, 2016 at 5:32 pm

    Correct me if I’m wrong here, but I was under the impression that, while everyone treats the CDS as an insurance policy, legally it is not insurance at all.

    • Curious Cat
      Jan 13, 2016 at 10:16 pm

      Danimal, you are correct. CDS ain’t insurance. These types of instruments were purposefully kept outside of insurance statutes to avoid regulation, seeing as insurance is a heavily regulated industry.

  2. Hil's Bubba
    Jan 13, 2016 at 9:23 pm

    Swap is substituted versus Insurance to avoid insurance regulations. Strong financial lobbyist can do magic!

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