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Credit Traders Restless to Make a Buck Turn to Leveraged Swaps 

July 23, 2015

Lisa Abramowicz, Bloomberg Business

Credit traders smell blood in the water.

More companies are running into financial trouble, and fund managers want to make magnified bets on which ones will be the next to suffer difficulty paying their bills.

To do so, investors are using complicated, leveraged credit derivatives called index tranches -- the very same structures that surged in popularity in the run-up to the worst financial crisis since the Great Depression.

“People want to take credit risk,” said Peter Tchir, head of macro strategy at Brean Capital LLC in New York. “I’m definitely having more people asking questions about tranches.”

The growing temptation to take credit risk with derivatives is easy to understand. It’s gotten harder to trade actual bonds. And at a time when the winds keep changing the way they’re blowing in Greece and China, it’s appealing to bet on companies that are already struggling to make ends meet as the Federal Reserve prepares to tighten its ultra-accommodative policies.

Read more: Bloomberg Business

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