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Derivatives

Credit Protection Moves Out To 10-Years In Japan

Ten-year credit default swaps on major corporates have started trading in the Japanese interbank market in the last few weeks. "A few selected Japanese investors decided to extend their investment horizons to get higher yields," said Ralph Orciuoli, managing director in structured credit products at Bank of America in Tokyo. NEC, Sony, Fujitsu, Toshiba and Toyota were among the names traded. Ten-year credit protection on Sony traded in the low 80 basis points, which is double the five-year price. Before the last few weeks a handful of 10-year prices had been quoted but this last burst of activity represents the beginning of a market, according to traders.

Market makers were enthused by the extra prices. "This is a positive step for the market," said Orciuoli. "This is a very good sign," added Stephane Delacote, head of credit derivatives at BNP Paribas in Tokyo. "More Japanese institutions are becoming aware of credit as a risk, resulting in an increased number of protection buyers. At the same time, more investors are becoming aware of credit as a possible yield enhancement, which is resulting in an increased number of protection sellers, which is why liquidity continues to grow in the Japanese credit market," he continued.

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