Dealers said a cross-section of hedge funds are bringing more liquidity to credit derivatives. Fund interest has been sparked by credit developments, such as indices, according to Lance Uggla, ceo of Markit Partners. He added even long short equity and global macro funds request credit index data from Markit. "This would suggest that funds across sectors--whether it's for arbitrage or some form of hedging--are using credit in the equity market," said Uggla.
Derek Smith, managing director and head of investment grade default swap trading at Goldman Sachs in New York, said this could be driven by more market players considering equity and credit correlation. "We increasingly find ourselves marketing equity versus credit trades to both equity funds and credit funds," he noted. "Are the equity and credit markets converging?" he asked, adding, there are a large number of single stocks which have no correlation to their credit spread, for example IBM.
