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Someone has sure made a large bet that rates are going up and default will happen and the AAA rating is gone.
"This means someone is confident that the United States is either going to default or is going to lose its AAA rating. That someone is willing to bet the proverbial farm that U.S. interest rates will be going up."
there are bets like this every single day in the credit default swap world and have been for many years..
good or bad times these bets are made daily on everything financial.
thats what people dont realize is so dangerous about many companies or agencies failing.
picture being able to bet at a las vegas casino on whether certain debts will be paid off. you can bet billions on this if you choose.
welcome to the world of credit default swaps which act as a form of insurance in purpose.
a company can owe a bank 500k and you say well if that company doesnt pay the bank so what,the banks out 500k.
thats the least of the troubles. there can be a billion dollars in bets made through credit default swaps that the bank will or will not get paid. thats a billion dollars in pension funds,institutions and funds that may loose depending on the outcome.
many cant afford the risk or to pay yet they play this dangerous game. the bet against us treasuries has been going on ever since these came about.
completely familiar with credit default swaps. The difference is that the outcome could effect all of us in the long run if the bet is right and rates go up significantly.This is the point
"an invisible trader placed a single trade that moved the most liquid debt market in the world."
I wonder who did it... from the news, it looks like a budget deal is imminent... but still I think the triple AAA rating is gone... so it seems to me that everyone knows the rating will be downgraded... my question is who would "accept" a billion dollar bet that it will be downgraded?
I wonder who did it... from the news, it looks like a budget deal is imminent... but still I think the triple AAA rating is gone... so it seems to me that everyone knows the rating will be downgraded... my question is who would "accept" a billion dollar bet that it will be downgraded?
I'm surprised there's even a story on it, frankly. A billion dollars hedging your portfolio against a downgrade isn't a whole lot of money to a hedge fund manager or an investment bank. It's a drop in the bucket.
5,000 contracts is not a big number. Armchair speculators regularly trade tens and twenties. In the pit, a smack on the forehead is "I'll take a hundred". For a Pimco to hedge the weekend is no surprise. One other thing, in futures you do not declare if it's an opening or closing trade. Someone could have been taking off a trade. The blogger wanted some drama.
You mean the same shameful ratings agency that rated MBS's as AAA.
yeh, pretty trustworthy bunch there.
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