by Michael Peterson
When credit spreads narrowed sharply in early May, investors and issuers breathed a sigh of relief. But the rise in corporate bond prices was not driven by a rally in equities or an interest rate cut. A new and powerful force was at work in the credit markets. “That tightening of credit spreads was driven almost entirely by the credit derivatives market,” says a senior credit derivatives trader. “Banks have been buying massive amounts of credit to cover short positions.
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