CDS use spikes as HY bond liquidity evaporates

摘要

Thin secondary bond market liquidity spurred investors to step up their use of credit default swaps during the past month's sell-off in US high-yield. There is, however, still a risk of substantial losses even though there has been no major change to underlying credit fundamentals. Huge outflows from the asset class, amounting to almost US$13bn in the past four weeks, according to Lipper, have sent yields on cash bonds some 100bp wider to 5.64% and brought the once robust primary market to a standstill. The mismatch in the size of the high-yield sector versus dealers' risk capacity means the market is ill-equipped to buffer client flows when investors head for the exit en masse.