|
|
Single-name credits that might have otherwise narrowed were blown wider by the explosion of sovereign CDS spreads before the latest Greek bailout, and then, following that event, narrowed when they would otherwise have widened. The latest data shows a fantastic expansion of liquidity in the CDS market in the preceding 12 months, in terms of principal outstanding and number of contracts outstanding.
This surge in liquidity has occurred at a time of profound volatility, when it might be expected that counterparties would be looking to take risk off the table not put it on. “There has been a marked increase in traded volumes in spite of volatility”, said a person close to the market last week. Moreover, it has been no secret the European regulatory authorities are no friends of the CDS market. In fact, the attitude of these officials to CDS has been undisguised hostility. The sanctity of contract, not to mention the future of the entire market, has hung in the balance, yet liquidity has blossomed. Another market analyst said: “This marked increase in the amount people are trading shows that this is not a useless instrument, but one used a lot in the disintermediation of risk”.
Full article (FN subscription needed)