The FT has an article about the big shakeout that the credit swap market experienced at December 7th.

The dollar interest rate 10-year swaps spread widened out by 2.5 basis points on December 7. That may not sound like much but in what has been a very complacent market for the past year it was a five standard deviation daily move, and it tells us that there could be trouble in paradise.

The dollar interest rate swap market, which you probably do not spend much time thinking about, had, as of June, about $65,000bn in notional outstanding value, or something like five times the US gross domestic product. It is big, invisible plumbing and, like water mains, it is of little interest most of the time. Until, of course, there is a gurgling and nothing comes out of the pipe. To use analogies from the more visible markets, a five standard deviation move in the Dow Jones Industrial Average would be a decline of 350 basis points, or a 40-point drop in the S&P500. That would have got your attention.

Now you would expect that sort of move following, say, the start of a war in some place with oil, or another visible macro event, but there were no headlines like that. We were sitting around, scratching our heads, wondering what the market was thinking, says a credit strategist at a global bank. As Bank of Americas credit desk noted: The usual suspect, mortgage convexity hedging, appeared an unlikely candidate as there was little movement in interest rates on Thursday (December 7). There was one event out there: the closure of Ownit Mortgage Solutions, which called itself one of the 15 top sub-prime mortgage lenders.

If the closure of Ownit mortgage has as much effect as the war, then prepare yourself for the wartime. I mean, in financial markets.