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Derivatives

Asian CDS Tighten On CDO Issuance

Credit-default swaps in Asia tightened last week on the back of buying by dealers structuring global collateralized debt obligations.

Credit-default swaps in Asia tightened last week on the back of buying by dealers structuring global collateralized debt obligations. Credit officials noted five-year protection moved in on average by 5-to-10 basis points across the board. Dealers said demand for global CDOs with Asian content caused a pickup in spreads on single name CDS like Korea, the Philippines and Hong Kong's Hutchison Whampoa. French house Calyon was believed to be behind some of the structuring activity, though credit officials at the firm declined to comment.

"Activity was higher than expected," said a dealer at a bulge bracket house, noting with Golden Week in Japan and public holidays in Korea and Hong Kong, the week is typically silent in terms of trading. Protection on the Korean sovereign credit printed over USD100 million in trading last Tuesday and Wednesday, whereas it usually changes hands around USD20-30 million in a typical day. The five-year CDS traded around a mid-price of 32-33 basis points, in from a mid of 38 bps the prior week. The iTraxx Asia credit index also reflected the moves, with the five-year contract tightening in from 50-54 bps to 45-48 bps late last week.

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