Derivatives traders seeking to profit on speculation JPMorgan Chase & Co. (JPM:US) is unwinding positions tied to its $2 billion trading loss are driving up a vintage credit- default swaps index to the highest in more than three months.
The 10-year Markit CDX North America Investment Grade Index Series 9, created in 2007, reached as high as 138.8 basis points today before easing to 137.9 as of 3:17 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 index ended yesterday at 126.7 and has climbed from 111.7 on March 30.
Traders are pushing the index wider as they wager it’s one of the bank’s biggest positions contributing to the loss, revealed late yesterday by Chief Executive Officer Jamie Dimon on a conference call with analysts. Some trading firms seek to profit from dislocations rather than bets on which way a market is headed.
The $2 billion loss occurred in London under multiple traders, according to an executive at the New York-based bank, who spoke on the condition of anonymity. Bloomberg News first reported April 5 that 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.
Dimon declined on the call to discuss the specific transactions or people involved. Synthetic credit products are derivatives that generate gains and losses tied to credit performance without the owner buying or selling actual debt. JPMorgan used the instruments to hedge exposure on loans and other credit risks tied to corporations, banks and sovereign governments. The losses emerged after the firm tried to reduce that position and unwind the portfolio, Dimon said.
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