Over the past few years, many new investors have moved into derivatives strategies such as equities volatility and dispersion as an alternative asset class. They are now taking the firsts steps to add the same strategies in the credit space, such as playing the difference between credit default swap (CDS) index contracts and the constituent single names.
The main driver is low returns in fixed-income markets. Indeed, safe portfolio investments such as 10-year US Treasuries are yielding just over 2%, while 10-year bunds were yielding 0.294% in mid-June. At the same time, stock markets are at record levels, making pension funds and asset managers wary of adding to their holdings.
