CDS on leveraged loans

Access to collateral is the number one topic of conversation in the CLO market. But if a viable leveraged loan CDS market develops, Christmas will have come early for many players.

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However, as the ABS CDS market has shown, these products can be tough to get off the ground.

In order to be traded in any size a CDS market needs liquidity and volatility in the underlying. Indeed, the ABS CDS market has only really taken off in the triple-B home equity space, with hedge funds using it as a speculative play to go short US consumer and housing risk.

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