The Hong Kong branch of Bayerische Landesbank plans in the coming months to start trading credit derivatives for the first time. The bank will purchase protection to hedge its bond portfolio and sell protection for investment purposes, according to Sattpy Chan, fixed-income trader. The bank will focus on Hong Kong credits, which make up the majority of its fixed-income portfolio. The typical notional sizes of the transactions will likely be USD5-10 million, noted Chan. "We want to make money," said Chan of the branches' reason for applying for approval, adding that previously the market was not sufficiently liquid to trade these products.
The bank will pull the trigger on its first credit derivative when it has received approval from its head office in Munich, according to Chan, adding that she expects that to be in the coming months, though declined to comment on a specific timeframe and the factors involved.
The bank uses international firms, such as Bank of America, HSBC, and Standard Chartered, for interest-rate derivatives, but has not started speaking to firms about credit derivatives, according to Chan.
