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However, as the ABS CDS market has shown, these products can be tough to get off the ground.
In order to be traded in any size a CDS market needs liquidity and volatility in the underlying. Indeed, the ABS CDS market has only really taken off in the triple-B home equity space, with hedge funds using it as a speculative play to go short US consumer and housing risk. And while leveraged loans may be more volatile than ABS (see chart), are they volatile enough?
“LCDS are an attractive product for both trading and investment books,” says Marcus Schüler, managing director, integrated credit...
