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Derivatives

Morgan Stanley Targets Emerging Mart Corporate CDS

Morgan Stanley is looking to build up trading of credit-default swaps on emerging market corporate bonds to take advantage of what it views as a lucrative developing market.

Morgan Stanley is looking to build up trading of credit-default swaps on emerging market corporate bonds to take advantage of what it views as a lucrative developing market. Pat Lynch, executive director and head trader of the corporate credit group in London, said his team will consider taking positions in deals on high-yield emerging market names, as well as beefing up its underwriting activity in these markets.

"This should be a growing market," Lynch said, adding the desk will look to focus on Russian names. He cited an expected increase in emerging market single-name bond issuance--due to corporates changing from state to private ownership and using notes as funding--as motivation for growing the trading platform.

One trader at a European firm estimated inter-dealer emerging market CDS trades increased steadily in the first half of this year, hitting USD60 million, but only 10% were referenced to corporate bonds. "As bond issuance increases and spreads tighten the more liquid the corporate market will become," he said, adding his firm is investigating the trades. Most major derivative houses are eyeing a push into emerging market corporate CDS, but have so far stuck with trading the more liquid Dow Jones CDX Emerging Market and Emerging Market Diversified indices.

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