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The Return Of Credit Derivatives

02 October 2015 by lberuti

Central bankers can do a lot to prop up asset prices and they have been quite successful at it over the last five years. But they are powerless to tackle the sharp rise in idiosyncratic risks such as the higher burden on German utilities to clean their nuclear power plants, the engines’ performances’ falsification by automakers, the excess leverage taken by commodity companies, or EM specific risk such as Brazil which affected European companies which were heavily invested in the country. The renewed alpha in European investment grade credit was a wakeup call for investors. Single name traded volume surged in September. Everyone was expecting an increase with the roll that took place the week beginning the September 21st, but even the week before volumes had ballooned to 20Bln USD per day, twice the average since early 2015. In September, cash bonds were harder to trade and investors used single name CDS to manage their exposure. Could credit derivatives be flavour of the day once again?