NOVEMBER 6, 2011
Eurozone crisis piles pressure on credit default swaps
by Tracy Alloway
November 6, 2011
Credit default swaps – the insurance-like derivatives instruments once labelled “financial weapons of mass destruction” – are now themselves under attack.
Vilified by regulators after the financial crisis, the $26,000bn market is already slowly being moved towards central clearing, which will see the CDS more tightly controlled. At the same time, however, the swaps have come under renewed pressure in Europe, where politicians say they have contributed to the region’s dramatic debt crisis.
These new developments have left many users of CDS scratching their heads.
“We need clarity from European leaders and regulators on the CDS market before it freezes,” says Simon Thorp, chief investment officer of fixed income at Avoca Capital. “At the moment huge questions remain.”
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