Investors are shying away from taking speculative positions through single-name and index credit-default swaps because of mounting negative sentiment on credit. "People are buying credit to put their cash to work, but given the chance to take a view they are being very negative," said one London-based trader. He pointed to the continuing tightening in the iTraxx indices, to around 30 basis points from 33bps a month ago, as evidence.
Another CDS trader said many of his firm's clients, such as fund managers, believe credit is fundamentally expensive and risk-reward profiles too poor to entice them. He noted structured credit players were still active because recent structural innovations in the first-loss piece of collateralized debt obligations has made buying that tranche attractive (DW, 6/9).
