GLENCORE’S CREDIT DEFAULT SWAPS SURGE

If you’re looking for a god damned reason why FCX is down 20%, this is probably it.

The mining giant is in trouble again, prompting bond holders to take out insurance, which is causing all sorts of fuckery. It’s almost like a self fulfilling prophecy.

The cost of insuring Glencore Plc’s debt against default rose to a more than six-year high as the price of raw materials such as copper continued to tumble.

The trader and miner’s credit default swaps increased to as much as 946 basis points, the highest since April 2009 on a closing basis, according to data from S&P Capital IQ’s CMA.

Slumping commodity prices have battered Glencore, prompting it to scrap a dividend payment, sell new shares and outline asset sales as it seeks to curb debt to maintain its investment-grade rating. Copper dropped to a six-year low amid a rout in metals as muted Chinese inflation increased concern that demand from the world’s largest buyer of raw materials will slow.

“CDS levels are driven by commodity prices and in the case of Glencore, especially copper,” said Max Mihm, a Frankfurt-based portfolio manager at Union Investment, which holds Glencore bonds among assets totaling about $271 billion. “If prices fall further and stay low Glencore will need to do more to protect its IG ratings.”

No one actually knows how much debt Glencore has, believe it or not. Some say $45 billion, others say $100 billion. Either way, the whole thing is fucked and is spooking stocks.

Equities gave up the rally and have now plunged to extend the nightmare called 2016.