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CDS Remains The Hedging Tool For Choice

26 November 2014 by lberuti

The 5 year risk premium of ABGSM ( Abengoa SA ) has been extremely volatile over the last couple of weeks. On the back of the well documented issues with the true extend of the company’s leverage, their cash bonds nose-dived, losing 30 points from their September peak before recovering half the lost ground. Cash was undoubtedly active during that volatile two-week-spell, but the bulk of the trading activity took place on CDS. When hell broke loose after the results release, more than $90mln CDS traded on average each day and the week after, when investors made the necessary adjustments to their portfolios, more than $170mln 5-year-CDS changed hands every day. Even on names which are fairly new to the CDS market – ABGSM only really started to trade in that format once it was introduced in the iTraxx Crossover 8 months ago -, it is the credit instrument which offers the best liquidity.