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 tim