Concerns grow on correlation of derivatives collateral

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Amid rising fears about sovereign risk, derivatives market participants have become increasingly worried about the correlation inherent in collateral denominated in domestic currencies posted by local banks.

“We’ve had certain people come to us and say they don’t want to accept certain things. We had one large counterparty come to us and request we renegotiate what could be posted,” remarks one New York-based counterparty risk manager at a major dealer.

Sovereign debt was once viewed as

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