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Derivatives

Flows Pick Up In Seven-Year CDS Trading

The boom in longer-dated structured credit transactions has spilled into the credit-default swap arena with a greater number of seven-year vanilla flow trades.

The boom in longer-dated structured credit transactions has spilled into the credit-default swap arena with a greater number of seven-year vanilla flow trades. Rising investor interest in longer-dated structured deals has been a feature of the market since the Spring (DW, 4/11).

Consistent tight spreads on structured deals over the past few years spawned long-dated liquidity for exotic trades and has driven a similar trend in flow, said one trader at a European house. "It has certainly created more liquidity in the CDS market," he said. He also noted seven-year bonds were becoming more liquid and the maturities were being matched with CDS.

While five-year maturities remain the most popular for CDS, market officials said there has been almost no activity beyond seven years. "There's been no selling at 10 years in anticipation of the curve steepening and subsequent illiquidity," said a trader at a U.S. firm. "We don't want to take on risk for that period of time."

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