Trading in credit derivatives increased 113% in 2006 to $49.9 trillion worldwide, according to a report released by Fitch Ratings, which warned that the market was still vulnerable to a sudden downturn.Index-based products traded more heavily than single-name credit default swaps (CDS) for the first time, at $22.2 trillion against $20 trillion notional, Fitch said. And the share of products referencing low-quality debt also continued to rise: 38% referenced speculative-grade or non-rated debt, compared with 34% in 2005 and 18% in 2003. Fitch said this represented a continuing search for yield in a low-spread environment.
Looking forward, the agency said market participants expected continued but slower growth of between 11% and 50% this year, led by growth in collateralised debt obligations, loan CDSs and traded indexes. The market was most likely to face problems related to a turn in the credit cycle or the lack of adequate documentation for LCDS transactions.
More on Structured Products
Many investors favour one approach over the other, belying their similar aims
Growth of renminbi assets ends Taiwan insurers' love affair with structured credit
State watchdogs issue warnings as insurers turn to proprietary index products
Securities Financing Transactions Regulation could conflict with Emir reporting rules
Sign up for Risk.net email alerts
Sponsored video: MarketAxess
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.