Credit derivatives notional tops $2.3 trillion

The notional value of credit derivatives contracts now tops $2.3 trillion, according to Risk ’s third annual survey of credit derivatives dealers.

The increase in vanilla business – the main engine of growth – combined with a boom in portfolio transactions such as tranched portfolio default swaps, synthetic collateralised debt obligations and nth-to-default baskets, up a third to $450 billion, has resulted in most dealers seeing their credit derivatives business double during the past year.

Despite a number of large reinsurers withdrawing from the protection selling business, which is an important concern for the market, the survey's results indicate the market is quite healthy. The survey found that reinsurers only accounted for 9.9% of end-user business and insurers 13.6%. Hedge funds and third-party asset managers have boosted their activity and now account for 13% and 6.8% of end-users. Dealers view the increased participation of asset managers in the market as crucial to overall future growth.