Emerging markets derivatives: Latins learn virtue of credit swaps
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Emerging markets derivatives: Latins learn virtue of credit swaps

Total-return swaps, options on credit spreads, default swaps - they all tend to be more talked about, than transacted. Except, that is, in Latin America, where banks and portfolio investors are starting to realize the big advantages of using credit derivatives. Andy Webb reports.

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Credit derivatives have a reputation for being illusory - everybody in the market talks about them, but few institutions use them. Latin America may be an exception. In the past few months a substantial amount of business has gone through the market. "Credit derivatives are definitely picking up," says Kevin Murphy, director of structured products at BankBoston. "The volume that we've seen in Latin America over the last three to six months has just moved up dramatically. It's been nothing short of remarkable. A key change has been the willingness of participants to go to much longer tenors on the credit side. Whereas before you seldom saw people quoting much more than six months to one year, now we're doing trades at five and seven years. "

There is also increasing broking activity, though in a form different from that in other markets, where dealers trade with one another using brokers for anonymity. As credit derivatives are not yet a traded market - they are dealt on a matched basis - the broker market provides much of the sales and client coverage that may not be available internally.


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