Fitch Ratings: CDS Liquidity Hangs in the Balance.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 -- The single name credit derivative 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 has expanded rapidly over the last few years, coinciding with a dramatic improvement in credit fundamentals since end of 2002. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. 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. , despite the CDS market's overall growth, it is not as clear whether liquidity and trading volumes Trading volume The number of shares transacted every day. As there is a seller for every buyer, one can think of the trading volume as half of the number of shares transacted. That is, if A sells 100 shares to B, the volume is 100 shares. have expanded to the same degree and, in the past at least, liquidity in the CDS market has at times proven to be fleeting. Positively for liquidity, the absolute number of reference names that are quoted in the CDS market increased over the period, while CDS bid-offer spreads
The bid/offer spread (also known as bid/ask spread) for assets (such as stock, futures contracts, options, currency pair) is the difference between the price available for an immediate sale compressed dramatically. 'That said, the CDS market at times does appear to be subject to structural imbalances as protection buyers typically exceed protection sellers,' said Roger Merritt, Managing Director, Fitch Ratings. In a new research report, Fitch examined liquidity for the CDS market as a whole from the 2002 to the present, looking at trading volumes, bid-offer spreads, number of traded and quoted reference names and the potential for market imbalances. As market participants would expect, the absolute number of trades has risen appreciably over the period. However, Fitch's research found that bid-offer quotes expanded at a much faster rate, perhaps reflecting the entrance of newer, less widely traded names. 'This trend is not unexpected, but does have important implications for liquidity, particularly during periods of stress,' says report co-author Paul Mancuso, Director, Fitch Ratings. The report, 'CDS Market Liquidity: Show Me the Money' is available on 'fitchcdx.com', the Fitch Ratings web page dedicated to the credit derivatives market. |
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