An estimated GBP350 million (USD618 million) in notional has been traded on the sterling iTraxx credit-default swap index, SDI-75, since its launch late November (DW, 11/23). Traders say demand has been driven by U.K. fund managers hedging sterling bond portfolios, noting protection buying is in sizes of GBP5 million plus. "With trades done in decent sizes it indicates funds are matching liabilities," said one credit official at a U.K. house.
Officials said they expect volumes to soar in the second half of this year as more sterling bond-fund managers gain approval to take positions using credit derivatives. "They will take advantage of the index to hedge positions as well as to put cash redemptions to work," said one analyst, noting a number of funds have put approval procedures in place. Trading of the 10-year fixed-rate note linked the index, SDI-75 Funding, has also been steady, noted traders, but has not matched volumes of the unfunded contract.