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Corporate bond market: credit derivatives and asset backed securities continue to grow

The credit derivatives market and asset backed securities (ABS) are showing impressive growth, according to research published by the global fund manager Standard Life Investments. In the sixth part of a series of articles from Global Horizons, the annual perspective of long term investment themes, Standard Life Investments' examined the recent developments in corporate bond markets, looking at some of the factors and influences.

Frances Hudson, investment director of strategy at Standard Life Investments, said: "The market for asset-backed securities is large and growing quickly, particularly in Europe, although growth is now maturing in the US. The core attractions of the market remain as a source of relatively high yielding securities for investors, and as a source of cheaper alternative funding for companies. The counterpart to these potential rewards is the need for a strong investment process.

"The relatively opaque nature of ABS structures means that investors must undertake considerable stress testing before considering them as a potential investment and must be vigilant in scrutinising these securities after the initial purchase. Looking ahead, the ABS market is expected to grow strongly, for example as new forms of issuer (e.g. more UK financial institutions and mid-sized companies) and new forms of investor (e.g.

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