Trading in emerging-markets CDS surges 85%
Eurozone's debt woes fueled interest in CDS
SAN FRANCISCO (MarketWatch) -- Trading in emerging-markets credit default swaps jumped 85% in the second quarter on the back of greater demand for insurance against sovereign-debt defaults, according to a survey released Tuesday by the trade group EMTA.
Inflation up, but the BoE doesn't careThe Bank of England's inflation update this week is likely to show inflation will remain well above its target. But the U.K.'s cental bank doesn't care. That's because it has an asymmetric policy: Too much inflation is better than deflation.
Emerging-markets CDS contracts surged to $658 billion in the second quarter from $355 billion in the second quarter of 2009 and up 35% from the first quarter of 2010, the trade association said.
CDS are a type of derivative that pays out in the event of default. A price of 100 basis points means it costs $100,000 a year to insure $10 million in debt for five years.
"We believe the standardization efforts made by the financial community in 2009 have contributed to better liquidity in the CDS markets," Hongtao Jiang, director of emerging-markets strategy at Deutsche Bank, said in a statement.
"Finally, we believe the hedging need caused by [euro zone] sovereign risk in April and May, and the subsequent squeeze, have also contributed to the increase in CDS trading volumes in the second quarter of 2010," Jiang added.
The most frequently traded sovereign CDS contract was on Turkish sovereign CDS, at $118 billion, followed by $92 billion in Russian sovereign CDS contracts and $69 billion in Brazilian sovereign CDS.
In the corporate sector, the most heavily traded contracts were those on Gazprom (PINK:OGZPY) at $54 billion and $10 billion in Pemex CDS.
TM's summer office
