Trade of the month: Counterparty risk

Trade of the month: Counterparty risk

Tim Mortimer, Future Value Consultants

Counterparty risk has dominated the structured products market since the onset of financial crisis because any investment in a product issued by an investment bank is simultaneously both a contract with a defined risk profile and a debt instrument issued by that bank. Prior to 2007, little attention was paid to the credit risk of issuers, certainly in the case of major banks with single A credit ratings or better. Correspondingly, credit spreads were low and all the focus was on the terms of the