Domestic Japanese derivatives houses, including Nomura Securities, Daiwa Securities SMBC and Mizuho Securities, have beefed up their structured credit expertise and are now taking on their international rivals. "They are developing independent structured credit capabilities they really didn't have before this year," said one credit head at an international firm. Previously the domestic houses were mainly seen as a distribution channel for products structured by the global players.
A credit derivatives trader at Nomura attributed the move to greater market maturity and increased interest from clients, given the low yields on Japanese government bonds. "More institutional investors are deciding to invest in these types of products," he said.
The trader continued that in addition to structuring such products as synthetic collateralized debt obligations and repackaged bonds, the firm is also preparing to start offering equity-default swaps on Japanese names in the coming months, in line with rivals Daiwa (DW, 4/18) and Mizuho (DW, 6/6). Credit derivatives officials also noted that greater competition from domestic derivatives houses is eroding profit margins.
