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Derivatives

Non-Traditional Investors Dominate Synthetic ABS

Credit hedge funds with little or no history in asset-backed securities have emerged as big players in synthetics.

Credit hedge funds with little or no history in asset-backed securities have emerged as big players in synthetics. They account for twice as much trade volume (23.7%) as structured products hedge funds (11.9%), which are traditionally focused on ABS, Kamilla said.

The creation over the last year of a common pay-as-you-go template for credit-default swaps on ABS and two synthetic ABS indices have revolutionized the ABS market and made it the most active segment of the credit derivatives market. This has resulted from and in a massive influx of participants and capital from unrelated markets. Traders speaking at the conference estimate USD350 billion outstanding ABS CDS notional and predict USD500 billion by year-end.

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