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Wells Fargo Said to Join Swaps Revival as Funds Clamor to Hedge 

March 10, 2016

Newsmax Finance

Investors are increasingly looking to bet against individual companies and countries in derivatives markets, after risk premiums on debt broadly jump. Money managers are also using the instruments to hedge risk. Transactions tied to individual entities surged during the first two months of the year, with volume doubling in the four weeks ended Feb. 5, according to a JPMorgan Chase & Co. analysis of trade repository data.

“As the markets have sold off in certain sectors, there’s been increased interest to hedge those specific sectors or names,” said Anindya Basu, a structured-credit strategist at Citigroup Inc.

Dealers are taking note. Wells Fargo & Co., the third largest U.S. bank by assets, plans to trade derivatives known as single-name credit default swaps with clients as soon as next quarter, people with knowledge of the matter said. Last year, Stifel Nicolaus & Co. began trading swaps tied to indexes and individual companies, two people said. Ken Griffin’s Citadel is also expanding into credit-default-swap trading for other investors, starting with indexes.

The firms are coming back to a part of the market that at least some banks had abandoned. The amount of debt protected against default by single-name credit derivatives has dropped to $6.8 trillion for the week ending February 26, from more than $33 trillion in 2008, according to data from the Depository Trust & Clearing Corp. Many investors lost interest in using credit derivatives to protect against markets getting weaker, as a recovering economy brought fewer defaults and a surge in corporate bond prices. Read more

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