Bond Traders Stymied by Gridlock Turn to Swaps: Credit Markets
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There’s a little silver lining for banks in the lack of liquidity in credit markets: the opportunity to peddle derivatives that mimic debt securities as a fix.
Trading in total-return swaps linked to bond indexes has surged to $4 billion a week, up from $2.4 billion a year ago, according to data compiled by BNP Paribas SA. JPMorgan Chase & Co. forecasts trading of the derivatives, which are meant to make it easier to place bullish and bearish bets in credit markets, will increase by as much as threefold this year.