Herd mentality

Warnings about herding behaviour in the credit derivatives markets have been dished out on a regular basis over the past couple of years. The signs were pretty clear: credit spreads had been tightening virtually uninterrupted from 2003 to the early part of last year as investors piled into the collateralised debt obligation (CDO) market - the vast majority taking exposure to the mezzanine tranche.

Then came the credit crisis. A sharp rise in delinquencies in the US subprime mortgage market, combi

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