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UBP Smiles On Credit Derivatives Exposure

Tom Burroughes, Group Editor , London, 22 June 2020

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Credit default swaps - which are tradeable, insurance-like instruments giving users exposure to credit - haven't always won admirers. The 2008 financial crisis forced big changes to the CDS market. Now available via exchanges, the market has changed considerably. The Swiss firm is an enthusiast.

A big market
Kazmi argues that CDS indices account for a large majority of total market turnover, overshadowing that of the underlying bond market. “This shows how far the market has come.”

With all the talk about changing economic cycles and moves in risk, investors will not want to hold lots of cash bonds if liquidity dries up. “In the latest risk-off period [in March] the outperformance [of indices] was very clear,” he said. 

Other benefits of holding CDS indices is that funds can cope with large subscriptions and redemptions - a point worth bearing in mind when some funds have had to shut because of large client pullouts.

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