The derivatives markets continue their sharp growth trajectory, led by a credit derivatives sector that has brushed off the dual threats of rock bottom spreads and processing strains. As trading margins erode in the bond-based credit derivatives market, dealers are increasingly looking to asset-backed credit default swaps and loan-based default swaps for future profit growth. Both markets have seen an increase in liquidity this year, but there is still debate between different constituencies over contract terms, and some target users remain...Read more
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The market for credit default swaps on asset backed securities (CDS on ABS) has had mixed fortunes. In the US, the ABX, a CDS index referencing US sub-prime home equity and ABS, has exceeded expectations, while the CMBX, an index based on CDS of commercial mortgage-backed securities (CMBS), has underperformed. Europe has seen light demand. Jean Haggerty reports.
This year is struggling to live up to its billing as the breakout year for loan–backed credit default swaps (LCDS). Volumes in the product have certainly grown in both Europe and the US, but documentation issues remain and efforts to launch LCDS indices have faced delays on both sides of the Atlantic. Jean Haggerty reports.
For most equity derivatives dealers, 2006 will go down as a good year, in part because of the renewed volatility in equity markets. And among clients, dispersion trading strategies are proving to be money spinners. Hedge funds that spent the summer licking their wounds after the late spring volatility spike are again ready to focus on trading. Jean Haggerty reports.
With commodity prices not expected to repeat the performance of recent years, dealers are concentrating their efforts on non-directional trading strategies and products. Negative roll issues are challenging both new and experienced commodity investors and giving rise to new products and trading strategies. Jean Haggerty reports.
As Islamic financial markets become increasingly developed, there is a growing need for Shariah-compliant risk management tools. A number of banks are gearing up to meet this need by creating Islamic derivatives and many new products are in the pipeline. Joseph Radford reports.
China’s onshore OTC derivatives markets took important steps forward when the Chinese Banking Regulatory Commission and the People’s Bank of China (PBOC) gave permission to commercial banks with derivatives licences to trade forward products and then cross currency and interest rate swaps. This was followed by a master agreement for forwards and swaps transactions. Nethelie Wong reports.
The planned US$8bn merger of the CME and the CBOT has increased pressure on other derivatives exchanges to consolidate. But listed futures and options exchanges need to find new product lines, as well as cut costs. Mark Pelham reports.
End-user activity in the interest rate derivatives market connected to asset and liability management (ALM) has become a core focus for market speculation. Anticipation of hedging activity now routinely moves markets and creates trading opportunities for sophisticated investors like hedge funds. Mark Pelham reports.