2007 Fitch Credit Derivative Survey: Rapid Growth Continues While New Concerns Emerge.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of & LONDON -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. said today the credit derivatives Credit Derivative Privately held negotiable bilateral contracts that allow users to manage their exposure to credit risk. Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents (private market (CDx) continues to expand at a remarkable pace while concern grows about how the market would deal with an eventual downturn. The total amount of credit derivatives bought and sold reached nearly $50 trillion at year-end 2006, an increase of 113% over the $23.4 trillion reported for year-end 2005. 'Leading the charge for the growth in the credit derivatives market are the traded indices, which, for the first time, surpassed single-named CDS in volume last year, even though single-name usage itself continued to expand rapidly,' said James Batterman, Senior Director, and co-author of Fitch's fifth annual 'Global Credit Derivatives' report. The agency estimates that $22.2 trillion of index products was bought and sold by year-end 2006, compared with $20 trillion in single-named CDS. Despite the current benign corporate credit environment, a number of market participants expressed concern for how smoothly the market can deal with an eventual downturn in the credit cycle. Specifically, some of these worries included liquidity in the event of a downturn, the impact that unwinding of system leverage can have on volatility, and settlement following a credit event. Nonetheless, survey respondents expect the CDx market to continue its expansion, with CDOs, LCDS (Loan-only Credit Default Swaps Credit Default Swap A swap designed to transfer the credit exposure of fixed income products between parties. Notes: The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product. ), and the traded indices cited as the biggest growth vehicles for 2007. 'The growth of the indices has been well-documented since their introduction, and as is clear from the figures, this expansion has continued unabated un·a·bat·ed adj. Sustaining an original intensity or maintaining full force with no decrease: an unabated windstorm; a battle fought with unabated violence. ,' said Eric Rosenthal Eric Rosenthal is the vice president of U.S. International Council on Disabilities, and also the founder and executive director of Mental Disability Rights International (MDRI), a human rights advocacy group which documents and reports on international conditions for people with , Director, and co-author of the report. On the surface, banks globally appear to have become somewhat more conservative in terms of their credit exposure, ending 2006 at $304 billion net protection bought, although 20 of the 44 banks surveyed, or 45%, were net sellers of protection. 'Trading' was again cited as the leading rationale for employing CDx. 'The increase in gross sold positions (120% from year-end 2005 figures) was influenced by the larger intermediation role played by banks and broker-dealers in meeting investors' demand for portfolio diversification Portfolio diversification Investing in different asset classes and in securities of many issuers in an attempt to reduce overall investment risk and to avoid damaging a portfolio's performance by the poor performance of a single security, industry, (or country). , enhanced yield, and general preference for increased structural complexity and leverage,' noted Krishnan Ramadurai, Managing Director, and co-author of the report. The global insurance and monoline industries continued to be key net sellers of protection at $395 billion and $355 billion, respectively, at year-end 2006. Complete information contained in Fitch's fifth annual credit derivatives survey, 'CDx Survey - Market Volumes Continue Growing while New Concerns Emerge' is now available on the agency's website www.fitchratings.com. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
|
||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion