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Traders Talk Up Pension Fund iTraxx Interest

10 Mar 2006

There appears to be growing interest from pension funds in trading credit-default swap index instruments and dealers said a stack of funds is gearing up to trade iTraxx swaps for the first time later this month.

There appears to be growing interest from pension funds in trading credit-default swap index instruments and dealers said a stack of funds is gearing up to trade iTraxx swaps for the first time later this month. Traders said they are fielding inquiries from funds wanting to buy protection on the iTraxx indices after the instruments roll on March 20, although names of funds and asset managers could not be determined.

No one trigger has set off interest, they noted, but rather attributed the debuts to the convergence of deep market liquidity, low volatility and sufficient passing of time for funds to gain internal approval. Funds are waiting until after the roll to enter the market because it is less susceptible to movements on the back of technical trading.

One trader in London said he will sell protection on the iTraxx main to at least three pension funds, all credit derivative virgins, who will use it as an overlay on their credit portfolios. "They will buy protection in decent sizes which will counterbalance liquidity being driven by CDO hedging," he said.

10 Mar 2006