While conditions are easing in the money markets the same cannot be said of credit markets and the CDS market in particular. The Aussie iTraxx index closed at a new record wide of 386 basis points on Friday and was out 156 bps from the end of the week before. However, it is widening corporate CDS spreads that are now driving the iTraxx index, less so financials. CDS spreads for the senior debt of the four major banks widened by 40 - 65 bps on Thursday and Friday after having been largely unchanged earlier in the week, remaining in the low 90 bps. This sudden widening in bank CDS spreads may reflect growing uncertainty over the future for the Commonwealth Government's bank guarantees.Leaving this aside though, the crisis has largely moved on from the global financial system to the real economy. How severe will the looming recession be? At least that is the conventional wisdom explaining what is now being seen in the CDS market, and certainly the explanation for the continuing sell-off in equity markets. But when looking at where the real spread blow-outs have occurred on the iTraxx index there seems to be another possible explanation for what is happening. BHP Billiton CDS widened by 214 bps to 536 bps over the week - this is an 'A+' S&P rated company. Apparently banks are hedging their commitments to the Rio Tinto takeover funding package, but that doesn't make economic sense at these levels. The troubled and highly indebted GPT Group saw its CDS spreads widen by as much as 86 bps to 817 bps before the rating agencies affirmed their ratings on the group (see below). Westfield is not highly indebted and is in fact, well capitalised but it is 'tainted' by property - its CDS spreads widened by 178 bps to 625 bps. Wesfarmers however, is carrying a lot of debt and its CDS spreads widened by 274 bps to 589 bps and the debt-burdened Rio Tinto saw its spreads widen by 191 bps to 626 bps. With the continuing ban on short selling in the domestic equity market, could short sellers be utilising the CDS market instead?