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Risky derivatives make return for returns' sake 

May 31, 2013
Francesco Canepa, Reuters

* Products behind 2008 crisis back in fashion

* Low bond returns encourage risk-taking through derivatives

* Investors exposed to rise in volatility when rates are hiked

* Also exposed to counterparty risk on OTC trades

* Clearing houses could be new "too-big-to-fail" hazard

LONDON, May 30 (Reuters) - Investors facing record low bond yields are increasingly chasing higher returns via complex derivatives, the instruments at the root of the 2008 global financial crisis, which can punch yawning holes in balance sheets if they go awry.

Monetary stimulus from central banks has driven down sovereign and corporate bond yields and sent shares to multi-year highs, which in turn has encouraged investors to buy structured products that bundle derivatives with stocks or bonds to increase returns.

Read more: Reuters

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