Ukraine crisis spurs 93 pct surge in Q1 emerging market CDS trade

miércoles 14 de mayo de 2014 16:22 GYT

By Daniel Bases

NEW YORK May 14 (Reuters) - Emerging market credit default swap trading volumes surged 93 percent in the first quarter as investors scrambled to protect fixed-income portfolios because of the crisis unfolding between Ukraine and Russia.

Data released on Wednesday from EMTA, the emerging market debt trading and investment industry trade association, showed $409 billion in volume during the first quarter versus $212 billion logged in the same period a year ago.

Compared to the fourth quarter of last year, CDS volumes rose 48 percent.

"The healthy rise of CDS volumes came on the back of an increase seen for market volatility. Excluding China's new entry, it is notable that half of the nominal volume increase among sovereign contracts was due to Russian trades," David Spegel, global head of emerging market credit research at BNP Paribas in London said in the EMTA statement.

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.

Russia's first quarter CDS contract trading volume of $70 billion represented a 303 percent increase year-on-year and a 215 percent increase over fourth quarter volumes. But Russia was not the largest. Brazilian CDS was the top traded at $72 billion while Turkey was third at $57 billion.

The EMTA data, collected from 12 major dealers, included for the first time CDS contracts on Chinese debt. Excluding that component, volumes rose 77 percent year-on-year, led by a sharp increase in Russian CDS.

According to Spegel, trading of Turkish CDS represented a further third of the increase in sovereign CDS volumes, "likely revealing the impact of investor re-weightings out of Russia and into other EM sovereigns."   Continuación...