Fund managers in Australia are snapping up credit-linked notes, spurring a three-fold increase in default swap volumes since the start of the year, reversing last year's market contraction. Gary Vassallo, head of derivatives at Macquarie Bank in Sydney, estimated his bank's CLN volumes have doubled. An Australian Financial Markets Association survey in October showed Aussie credit derivatives volumes had bucked a global trend and fallen by around 20% to AUD22 billion (USD13.3 billion) a year (DW, 10/28).
Glen Hodgeman, head of Australian dollar credit trading at Citigroup in Sydney, attributed the growth of credit products to funds putting wider mandates in place that permit them to trade the products as well as the lack of bond issuance in Australian dollars. "Australian corporates are getting cheaper funding levels by going to the global market," said Hodgeman, explaining that with low interest rates in the U.S. and Japan, many Aussie companies have issued in foreign currencies. Investors have been turning to credit-linked notes and credit-default swaps for a yield boost and to gain exposure in their domestic currency.
Asset managers Tyndall Australia and Deutsche Asset Management are both increasing their interest in credit-linked notes. Roger Bridges, fixed income portfolio manager at Tyndall Australia in Sydney, has been eyeing the products since last year (DW, 6/9), but has put the plans on the backburner because of its planned IPO this summer. Bridges expects to make the jump before year end. Bill Bovingdon, head of fixed income at DeAM in Sydney, said, "After making our initial foray, we're continuing to look for more diversification."
