Credit derivatives volumes explode

Notional outstanding credit derivatives volumes grew by 55% over the second half of 2004, rising from $5.44 trillion to $8.42 trillion, according to a year-end market survey conducted by the International Swaps and Derivatives Association (Isda).

This translates into annual growth of 123% for credit default swaps, baskets and portfolio transactions, all defined as credit derivatives for the survey. Growth in the first half of the year was 44%.

“The strong growth exhibited in credit derivatives clearly underscores the benefits of these products as risk management tools for an increasing range of market participants,” said Bob Pickel, chief executive of Isda.

However, expansion slowed in interest rate derivatives, which includes interest rate swaps and options and cross-currency swaps, dropping to 12% over the second half of the year from 16% in the first half, giving annual growth of 29%. Notional outstanding volumes now sit at $183.6 trillion.

Notional outstanding volumes for equity derivatives, including equity swaps, options and forwards, grew by 10% during the second half of the year to $4.15 trillion. This is up slightly on the 9.7% increase reported during the first half of the year. Annually, this represents a growth rate of 21%.