Credit derivative houses in Asia have agreed to start trading 10-year contracts referenced to the iTraxx credit derivatives index next week when the indices rollover. "This will likely be used by customers to hedge existing positions or hedge their overall portfolios," said an official at JPMorgan. Dealers have been talking about launching this contract since the onset of the year (DW, 1/7), but there were concerns about limited liquidity. The emergence of longer-dated credit-default swaps and portfolio swaps linked to Asian names, however, gave dealers comfort there would be liquidity in the index.
"There's more seven and 10 year names being quoted as well as greater curve trades," said a trader at a U.S. house, noting the growing interest for trades in the longer end as clients search for yield.
