Skip to comments.Credit default swaps booming in China
Posted on 07/20/2014 9:09:36 PM PDT by Citizen Zed
Trading in mainland sovereign credit default swaps has more than doubled in the past year as fears over slowing growth and rising corporate defaults in the world's second-largest economy have helped transform the contract into the go-to Asia hedge for macro investors.
The country is now the third largest single-name CDS contract in the world by net notional, despite having only a handful of small outstanding bond issues.
The mainland's lack of external debt has led some investors to dismiss the CDS as a purely speculative instrument, highlighting that it is unlikely to provide any default protection.
But this has not prevented the contract from building a critical mass of liquidity, as global managers such as bond behemoth Pimco have become more active in the contract amid rising fears over an economic slowdown, property bubble and the shadow banking system.
"As China became the main cause of concern for global growth at the start of the year, we have seen a lot more macro accounts get involved in China CDS as a cheap and efficient way to hedge their cross-asset exposure," said Salih Unsal, a Hong Kong-based credit trader at Citigroup.
"The China (CDS) sovereign curve is arguably now one of the most liquid credit products in the region. Whether it's hedging or speculative activity, it's the easiest way to take a view on Asia."
Real money managers such as Pimco have become heavily involved in the market.
(Excerpt) Read more at m.scmp.com ...
Isn’t this the type of thing that helped bring on the 2008 financial crisis in the US?
2008 financial crisis was waiting to happen. Bank lending to sub-prime borrowers was the main reason. That caused house prices to inflate for many years. Eventually the prices reached unaffordable levels. The big Wall street banks were selling bonds with home mortgages as collateral. When housing bubble burst, those mortgage backed securities (MBS) prices collapsed. That reduced balance sheets of many banks to negative. Then they could not give out any loans because banks are required to have 10% positive assets to make loans. That essentially was the financial crisis.
Send all those illegal aliens to an empty city in China!!
“Send all those illegal aliens to an empty city in China!!” Win-Win!
and cheaper than they are now too
In the US, they WERE a great investment, if the counterparty could pay off. Think AIG. Also, think John Paulson--a formerly modest hedge fund operator who called it right and made billions.