Trading desks squeezed by market tightening
A largely unexpected spread tightening in European credit caused by CDO issuance in late August and early September wrong-footed several banks’ trading desks. Simon Boughey reports
August is not generally the busiest or most interesting month in the capital markets calendar. Summer days are long, but trading sessions are frequently short and depopulated. However, August 2004 and the weeks thereafter witnessed a revolution in the CDS market. Spreads tightened dramatically, with often painful results for a few London trading desks.
The extent and depth of the rally took virtually everybody by surprise. As levels plummeted throughout August and into September, traders said
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