Credit risk

Credit derivatives are under scrutiny again, this time over the role they played in the current Greek debt crisis. Last month, French finance minister Christine Lagarde blamed speculators for contributing to the eurozone’s debt problems, and argued the sovereign credit default swap (CDS) market should be tightly controlled.

It is true some hedge funds and banks have bought protection on a variety of European sovereigns in recent months – trades that caused spreads to widen significantly. But the