Credit hedging market shrinks in first half: BIS
Posted: 12 November 2009 0909 hrs

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GENEVA: The market for credit default swaps, which spiked when the US subprime mortgage market was collapsing, shrank in the first half of 2009, the world's biggest central bank body said on Thursday.

Over the first six months of the year, the volume of outstanding CDS contracts fell 14 percent to 36 trillion dollars (24 trillion euros), according to latest data from the Bank for International Settlements.

The decline came after volume already dropped 27 per cent to 41.9 trillion dollars in the second half of 2008.

CDS are bought to cover losses in case of default on debt repayments.

Buyers of such swaps pay premiums to insure against default in the debt they are exposed to, while sellers are typically banks, hedge funds and other financial institutions who have gathered such debt assets.

With the US subprime or higher-risk mortgage market collapsing in August 2007, investors were anxious to acquire such insurance as defaults mounted, pushing up the premiums charged.

However, amid the crisis, sellers of such insurance also withdrew from the market, leading to sharp falls in the amount of outstanding CDS contracts.


- AFP/so