Who rules whom?
Is the burgeoning credit derivatives market still best seen as a hedging device? Or have some participants turned it to unfair advantage over bond investors on the basis of what amounts to inside information?
VOLUMES AND LIQUIDITY in credit derivatives have grown at a rate that has pleasantly surprised even the market's most dedicated supporters.The leading bank dealers couldn't be happier. They say credit derivatives are revolutionizing corporate bond markets, bringing liquidity and two-way trading.
Certainly the market has enabled these banks to manage their own credit exposures far more effectively - the purpose it was originally conceived for. But institutional investors in the corporate debt market have been slower to warm to the new instruments.
Those without access to credit derivatives were at a disadvantage in 2002's harsh credit downturn and many investors are trying to level the playing field by gaining approval to use them.