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◆ Public sector issuers embrace hedge fund bid... ◆ ... as they flex in the swap market ◆ Car makers welcomed back to bond market
CEB plans to print more structured notes and may launch inaugural Sofr bond in 2026
Japanese firm plucks banker from UBS
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Two events have dominated the sovereign credit default swap world this week: one important and the other one markedly less so. The first was the Irish government's clarification of its bank bailout plans. The uncertainty surrounding the issue has made a major contribution to market volatility in recent weeks, and Ireland's spreads went beyond 500 basis points to another record wide on Tuesday. Finally, on Thursday morning, the government published details of its plans.
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One of the main concerns about the current market is the problem of liquidity, in other words the amount of trading which is going through the market. We are only going to consider the listed option market since it is difficult to determine over-the-counter volumes. Therefore we are going to consider the listed option market as an indicator for the wider options market as this is readily observable.
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Correlation trading through swaps enables one to take a purely systematic correlation view. The fixed side of the swap is based on the implied correlation, which is calculated from the related implied volatilities. The floating side is the final realized correlation of spot returns at expiration (typically 4pm London WMR Fix) using the standard Pearson's correlation. Due to the mean reverting nature of correlations and the fact that they have mathematical and natural type boundaries, the product can create excellent trading opportunities. Other attractive features are asset diversification, zero premium outlay, and efficiency relative to the vanilla option replication.
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The Committee of European Securities Regulators is against aspects of the Financial Accounting Standards Board's approach for classifying and measuring financial instruments, such as derivatives.
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Zero coupon bonds linked to equity tranches of credit default swap indices have surged in popularity.
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Matthias Lennkh, the former head of fund derivatives for Europe and Asia at Bear Stearns, and Fabrice Perez, the former head of fund derivatives at AIG Financial Products, have launched a boutique investment management company focused on quantitative trading.