Investors turn to credit derivatives amid fears of liquidity freeze in next market crisis
Concerns about illiquidity in corporate debt trading are leading some money managers to look to credit derivatives as a way of swiftly moving in and out of their positions when the next downturn hits.
Mutual funds that specialize in hard-to-trade corporate debt say indexes tracking the performance of credit default swaps serve as a useful tool to deal with redemption requests during times when trading in corporate bonds is at a standstill. This comes as global financial regulators led by the Bank of England have flagged how funds holding illiquid assets could struggle to sell their holdings and potentially fan market panic during a selloff.
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