Bloomberg carry the report (Bloomberg is gated) that "Regulators are singling out a trade on Deutsche Bank AG’s credit default swaps that they suspect fueled a global sell off on Friday."
The Bloomberg report is citing "people familiar with the matter". In brief:
- It was a roughly €5 million ($5.4 million) bet on swaps tied to the German bank’s junior debt
- regulators have spoken to market participants about the transaction
- The contracts can be illiquid, so a single bet can trigger big moves
- The suspected knock-on effect was a rout that sent banking stocks tumbling, government bonds higher and CDS prices for lenders soaring, trimming about €1.6 billion off Deutsche Bank’s market value and more than €30 billion off an index that tracks European banking stocks
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Its not the market that's the issue, its the propensity to freak out.
And propensity to fuel such freakouts when its worth $$$ to do so ;-)
