Relative value credit-default swaps trades that offer exposure to different parts of default-swap index curves are becoming increasingly popular. Sunita Ganapati, senior v.p. at Lehman Brothers, said credit derivatives indices have experienced an increasingly steepening curve, which is offering more relative value opportunities between five- and 10-year default swaps. For example, the spread between five-year and 10-year iBoxx swaps has steepened to 19 basis points in the past few weeks, compared with 10bps when the index was launched last year, she noted. Investors are also seeing opportunities in trading the difference between individual names and the sub-indices.
Jeremy Barnum, head of North American credit derivatives trading at JPMorgan in New York, agreed that the derivatives giant is seeing more relative value trades spurred on by increased liquidity.
