Avoiding the crush

Synthetic CDOs

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It has been a one-way street for Japan’s credit derivatives market. Japanese credit default swap (CDS) spreads have just kept grinding tighter and tighter, driven by a steady demand from the country’s investors – and particularly regional banks – to invest in synthetic collateralised debt obligations (CDO), seen as a higher-yield alternative to Japanese bonds.

It has meant the credit market has been dominated by an overwhelming number of protection sellers, with the market driven by technical

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