A pick up in trading of credit-default swaps on tranches of cash-flow collateralized debt obligations is being reported by players in the U.S. One Greenwich, Conn.-based trader estimated between USD100-200 million is being traded weekly across the market, compared to almost nothing in the fall.
The growth of the embryonic market is being attributed to the release of standardized documents for U.S. trades by the International Swaps and Derivatives Association on June 7 (DW, 6/6). A European document is currently being considered, according to dealers.
"This market is gaining traction bit-by-bit," said one London-based credit strategist, adding two-way liquidity in CDS on CDOs could lead to basis trades between cash-flow CDOs and single names and maybe even renewed interest in CDOs squared (DW, 6/9).
Another official welcomed the growth, but was at a loss to name which players are buyers of CDO protection. "CDO buyers are the natural sellers of synthetic protection, but it is hard to know where the buyers are coming from," the official noted.
