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Swap Gauge Expands in Latest Effort to Revive Derivatives Market 

March 20, 2015

John Glover, Bloomberg Business

Gauges investors use to hedge against losses or speculate on the credit quality of Europe’s financial companies have been expanded in the latest effort to revive the $14.8 trillion credit derivatives market.

Benchmark indexes of credit-default swaps now protect 30 of the region’s banks and insurers, up from 25 previously tracked. That’s the most since they were created and follows two successive expansions of Europe’s high-yield corporate benchmark.

Markit Group Ltd., which manage the indexes, is seeking to boost liquidity in measures that have seen a 23 percent reduction in outstanding volumes over the past year. Credit-default swap contracts were overhauled last year to better protect holders of financial debt by explicitly insuring against losses imposed as part of government rescues of failed lenders.

“By increasing the index members you might get more volume and that should help with liquidity,” said Gregory Turnbull Schwartz, a money manager in Edinburgh at Kames Capital, which manages about $78 billion. “The financial indexes aren’t particularly liquid, though the senior is better than the sub.”

Read More: Bloomberg Business

 
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