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Emerging market CDS trade volume falls 10 pct in 1st qtr-EMTA
April 29, 2013 / 9:51 PM / 5 years ago

Emerging market CDS trade volume falls 10 pct in 1st qtr-EMTA

NEW YORK, April 29 (Reuters) - Trading in emerging market credit default swap contracts fell 10 percent in the first quarter to $212 billion from the year-ago period, as activity among European sovereigns declined further, a new survey showed.

Data released on Monday by EMTA, the trade association for the emerging markets debt trading and investment industry, showed that volumes fell from the $235 billion in the first quarter of 2012.

Credit default swaps are used by investors to help protect fixed income investments from defaults or restructurings.

But volumes jumped 49 percent from the $142 billion in the fourth quarter, reflecting “abnormally low” levels at the end of last year, “when the reduction in risk limits - and the exit from the market by some dealers - led to a low level of activity,” said Hongtao Jiang, head of EM sovereign credit at Deutsche Bank.

As a result, the higher quarter-on-quarter volumes were more likely a correction than an upward trend in activity, he added.

At $48 billion, Brazilian CDS contracts posted the largest volume in the survey. Jiang pointed to proxy demand for Brazilian CDS because of corporate weakness in Latin America’s biggest economy.

Mexico and Russia also posted high volumes, at $28 billion and $17 billion respectively.

Activity continued to drop off among European Union sovereigns, Jiang said, perhaps because of a regional ban on naked long protection positions as of late 2012.

Among corporate CDS, Brazilian state-owned energy company Petrobras saw the highest volume, with $2.6 billion. Other corporate CDS contracts with more than $1 billion in trades included Russia’s state-owned energy company Gazprom , Mexico’s state oil monopoly Pemex and Venezuela’s state oil company PDVSA.

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