Because credit default swap, or CDS, indexes act as a more liquid proxy for hard-to-trade corporate bonds, money managers like Amundi Pioneer say such products can help satisfy a rash of redemption requests that can trouble bond funds who might otherwise struggle to sell their illiquid holdings and free up funds in sufficient time.
This is how it works. A fund manager would keep the majority of his portfolio in corporate paper, and a small sliver in CDS indexes. When markets freeze up and redemption orders stream in, the money manager sells the CDS index instead of the corporate bond and hands the proceeds back to the end-investor.
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