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A high-yield takeoff

A big focus for credit hedge funds and other traders in the past couple of months has been the opportunities created by the rapid increase in liquidity in high-yield credit derivatives. Since the two rival index providers merged in July volumes have taken off.

 "There's huge volume in all the high-yield indexes," says Will Roberts, head of structured credit trading at Goldman Sachs, referring to the 100-name product as well as its main offshoots – the BB sub-index, the single-B sub-index and the high-beta index. "The high-yield tranche market is also very active. We're printing multiple trades a week where at the start of the year we were doing very little." His colleague, Eric Oberg, head of credit derivatives trading, adds: "And the main index trades at an eighth of a point. You can't get that anywhere else in high yield."

It has not followed the same path as indices in other products, though, says Boaz Weinstein, head of integrated credit trading at Deutsche Bank: "In those cases the underlying individual securities were liquid prior to the roll-out of an index. In high yield, for the most part, it's the other way round. The liquidity in the high-yield credit derivatives index is so good that it's actually improving liquidity and generating a lot of liquidity in single-name default swaps as well as bonds.

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