Derivs - Credit

Phil Cramp, ex-head of credit for Europe, Middle East and Africa at ICAP in London, is set to join BGC Partners as head of credit, repo and European government bonds in London from December 1.

Deutsche Bank has hired a new head of fixed income and currencies structuring, who will also lead a project to analyse trading positions right across the investment bank and allocate capital appropriately

Overall credit default swap notional that was reported to swap data repositories last week decreased by 38% from the previous week, according to data from the International Swaps and Derivatives Association. This follows a consistent uptick over recent weeks in CDS notional, which has seen a 160% increase over the period.

Hedge funds are targeting decompression between iTraxx Crossover and iTraxx Main, in the expectation that Main will tighten versus Crossover in the aftermath of rumours that the European Central Bank may extend its asset buying programme to include corporate bonds. Funds are specifically looking at going long risk iTraxx Main and short risk iTraxx Crossover.

Asset managers are watching the basis, or the differential in spreads, between derivative contracts based on 2003 International Swaps and Derivative Association documentation and the new 2014 documentation, to look for any opportunities for arbitrage on financial names.

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The fate of the eurozone’s ailing economy, and the policies undertaken to tackle the malaise, should have the biggest influence on spread direction in the coming months. But in the near term, Europe’s banking sector will be under scrutiny with the announcement of the ECB’s Asset Quality Review and the EBA’s stress test results on October 26.

Market participants outside the EU are grappling with a European regulation that mandates clearing for non-EU-derivatives contracts, resulting in a lot of differences in interpretation, according to lawyers.

Real money players are considering going long funded instruments such as bonds, versus unfunded instruments such as credit defaults swaps, in light of rumours that the European Central Bank may extend its asset buying program to include corporate bonds, according to strategists at Citigroup.

Futures commission merchants (FCMs) are expected to come under increasing pressure from the buyside to reduce the clearing fees that they charge as trading volumes increase. This comes following an increase in rates charged by some FCMs in a bid to cover the rising costs of business associated with the implementation of various regulatory changes.

Hedge funds have been picking up volatility in iTraxx Main and Crossover during a week in which credit volatilities have been repriced higher, with Crossover being the most affected.

Overall credit default swap notional that was reported to swap data repositories last week decreased by 4% from the previous week, according to data from the International Swaps and Derivatives Association. This follows six weeks of a consistent uptick in CDS notional, with a combined increase of 160%.