Interest in Australian credit-default swaps in global synthetic collateralized debt obligation portfolios has waned in recent months due to near record tight spreads, which has dented liquidity. "Credit spreads are as tight as they've ever been," said Greg Wakelin, credit derivatives trader at ANZ in Sydney. Previously CDO arrangers were willing to incorporate lower yielding Australian credits for diversification purposes but with spreads continuing to grind in, players are shying away. "The market has suffered as a result," he added. A senior credit trader at a bulge bracket house concurred: "It's a lot harder to make money this year."
Although the domestic credit market has stagnated, overall interest in credit products has grown substantially in Australia, as end users have been plunging into more volatile overseas markets, such as the U.S. and Europe. "There's been a much larger pick up," said the senior trader, noting volumes for products including first-to-default baskets and CDOs have been increasing.
