November 22, 2013 / 8:45 PM / in 4 years

Emerging markets Q3 CDS trading volumes rise; Gazprom surges-EMTA

NEW YORK, Nov 22 (Reuters) - Emerging market credit default swap contract trading volume rose 39 percent to $297 billion in the third quarter of this year versus the same period in 2012, according to data released on Friday by EMTA, the trade association for the emerging markets.

CDS act as a kind of insurance for investors who own debt, in this case debt issued by sovereign nations, against potential default or restructuring.

Volumes were up 7 percent over the second quarter of 2013, the survey of 13 major dealers showed. Volumes have risen for the last four quarters, EMTA said.

The largest trading volumes were in Brazilian CDS instruments, with $51 billion changing hands, down from the $65 billion reported in the second quarter. However, trading in Turkish CDS increased slightly to $34 billion in the third quarter from $33 billion in the second quarter.

Russian CDS trading was reported at $31 billion in the latest reporting period.

Jane Brauer, senior strategist at Bank of America Merrill Lynch, said that in Europe, the Middle East and Africa there had been a change in focus among non-traditional emerging market hedge funds as they looked at the relative valuation plays between CDS and currencies. Trading focused toward the three main CDS contracts that were not subject to European Union positioning limits: Russia, Turkey and South Africa.

“In Latin America, however, trading volume is back to the second quarter levels, before this year’s volatility began,” she added.

Nine corporate CDS contracts were tracked as well.

Russian state-owned energy company Gazprom showed a 177 percent increase in volume from the second quarter of this year to $7.5 billion, making it the most actively traded corporate CDS contract.

Following Gazprom in second and third place were state owned energy companies in Mexico and Brazil, both of whom saw declines in trading volumes.

Third-quarter trading volumes for CDS contracts in Mexico’s Pemex fell to $1.7 billion from $2.3 billion in the second quarter. Brazil’s Petrobras CDS volumes dropped to $1.3 billion from $1.6 billion over a similar period.

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