High-Yield CDS Takes Off In Asia

High-yield credit-default swaps in Asia are gaining momentum due to increased hedge fund interest and a drive from dealers looking to widen the range of tradable names. "This is one of the biggest trends I see happening this year," said a credit trading head at a bulge-bracket house. Credit derivative dealers explained that on the back of greater bond issuance as well as attention from end users such as hedge funds, CDS on high-yield names are starting to become regularly quoted in the interbank market.

"We're seeing two or more trades a week whereas a year ago it was probably once a month," said a credit trader at a European firm. Dealers said the most actively traded high-yield default swaps now include Vedanta Resources, Noble Group and Panva Gas Holdings. Market participants are more actively quoting the names to help push the development of the Asian market, which continues to lag a few steps behind Europe and the U.S., noted traders.

Credit officials also expect a few high-yield names to be liquid enough over the course of the year to merit inclusion in the iTraxx Asia credit index. "A few high-yield names will likely be included in the September roll," said the credit trading head.