Swaps Index Linked to JPMorgan Loss Surges Versus Current Gauge
The vintage credit-default swaps index said to have contributed to JPMorgan Chase & Co.’s $2 billion trading loss is surging relative to the current index.
The 10-year Markit CDX North America Investment Grade Index Series 9, created in 2007, increased to 168.6 basis points at 4:30 p.m. in New York, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
The difference with the current version of the five-year index, the Series 18 expiring in June 2017, widened to 45.2 basis points, the biggest gap since August 23.
Traders are pushing the older gauge wider as they wager it’s one of the bank’s positions contributing to the loss after its chief investment office took flawed positions in credit derivatives, wagers that were “poorly monitored,” according to JPMorgan Chief Executive Officer Jamie Dimon. The index expiring in December 2017 jumped 13 basis points to 139.75 on May 11, the day after Dimon disclosed a $2 billion trading loss in synthetic credit. It’s climbed from 111.7 on March 30.
Bloomberg News reported April 5 that London-based JPMorgan trader Bruno Iksil had amassed positions linked to the financial health of corporations that were so large he was driving price moves in the $10 trillion market. The unit responsible for the loss was valuing some of its trades at prices that differed from those of its investment bank, according to people familiar with the matter.
Synthetic credit products are derivatives that generate gains and losses tied to credit performance without the owner buying or selling actual debt. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
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