The European cash bond market outperformed the credit default swap market last week, in a sign the panic hitting the CDS market over rumors of hedge funds blowing up is not based on fundamental credit concerns, said London-based traders.
The choppiness in the CDS market last week was instead based on technical factors, argued traders. "The hedge fund trades are being driven by a move in the correlation market, not by fundamentals. Sure, it's making real money investors nervous, but the cash market is following this move."
"There just aren't forced sellers in the cash market," said Jim Higgins, head of credit trading at Citigroup. That said, very few real money investors are stepping up to the plate and buying on weakness. "Most real money guys are willing to miss the first 5% of a move before getting back into the market," noted Higgins.
