Well, what a hectic few days it has been. Everyone has known that Lehman's have been a huge counterparty risk for some while now - so much so that the industry was working on a sunday as ISDA organised a trading netting session to reduce risk to Lehman's yesterday. Despite this, spreads were always going to widen today, but there is still not unfounded fears that the whole of the CDS market may unravel. Benchmark indices of corporate credit risk rose by  record margins in London, and traded near an all-time high in teh US, driven by a rise in Goldman Sachs Group Inc., Morgan Stanley and American International Group. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.

Lehman, a bastion of Wall St for generations, was one of the largest counterparties in the market for credit-default swaps. As an OTC market it is therefore unregulated and has no central exchange and thus no price transparency. As Bill Gross of Pimco was quoted as saying:

"The immediate problem is the derivative default swaps market, in which a plethora of institutional accounts and dealer accounts are at risk, it induces a tremendous amount of volatility and uncertainty.''

The Markit CDX North America Investment Grade Index, linked to the bonds of 125 companies in the U.S. and Canada, rose 37.5 basis points to 189.5 as of 9:45 a.m., according to broker Phoenix Partners Group. The Markit iTraxx Crossover Index of 50 European companies with mostly high-risk, high-yield credit ratings jumped 68 basis points to 614, according to JPMorgan Chase & Co. prices.

So is this the beginning of the end for the CDS market? I am no sage but I dont think so. For once the industry has been prepared and joined up in its thinking. We knew Lehman's was going to fail and we have tested our responses to this. It is however another nail in the coffin for the wild days of late, but we should get used to a new paradigm where risk management is as important as profits and revenues. I for one think that is a good thing, though I know a number of traders and fund managers who want to throw sharp-edged objects at my head for saying so....