High-yield credit-default swaps are at the beginning of a huge growth cycle that will likely outstrip that of high-yield bonds, according to Jared Epstein, managing director in credit derivatives trading at Morgan Stanley in New York. Although the high-yield credit derivatives market is still relatively illiquid when compared to investment grade credits, the same can be said of many high-yield bonds with credit derivatives being "the taller pygmy," added Epstein.
The merger of the investment grade and high-yield markets and the efficiency of credit derivatives in allowing investors to take short views are among the factors driving growth in high-yield swaps, noted Leonard Brous, structured credit product manager at Morgan Stanley in New York.
The number of high-yield credits actively traded in the market has grown to 75 from around 20 at the beginning of last year, while the number of counterparties trading the credits has more than doubled to around 140, from just over 60 in the same period, said Epstein.
