Deutsche Bank has structured what is thought to be the first Taiwan-dollar credit derivative and rival houses BNP Paribas, Credit Lyonnais and JPMorgan are in hot pursuit looking to market similar deals. The German bank sold a USD10 million equivalent Taiwan dollar-denominated credit-linked note referenced to a domestic name, according to an official at the firm. The instrument is similar to a deposit but does not contain a guarantee, he added, declining further comment.
BNP expects to market its first local-currency credit derivatives in the coming weeks, according to C.G. Lai, head of fixed income in Taipei, and officials at Lyonnais said they are also racing to complete such transactions. "Everyone now is educating their clients," said a Credit Lyonnais official.
Although U.S. dollar-denominated credit derivatives referenced to Taiwanese names already trade in the offshore market, the development of local currency instruments is expected to draw in a wider range of end users. Indeed, David Lai, research team head at Yuanta Core Pacific Securities in Taipei, said his firm expects to buy Taiwan dollar-denominated default swaps to hedge convertible bond positions within six months. "There will be a bigger and broader market," said Lai, continuing, "We're convinced that there is credit appetite from participants such as banks and insurance companies."
A fixed income official at JPMorgan concurred, noting investors will likely plunge into the products and make it a larger market than, say, Singapore's domestic currency credit mart.
BNP, Lyonnais and Deutsche Bank were the first derivatives houses to receive licenses for onshore credit derivatives last year (DW, 9/1). The official at JPMorgan said the firm is in the process of applying for a license and is preparing to offer the products in the coming months.