Banks, Hedge Funds Change Trading Strategies After Credit Derivatives'Panic'

Created by : Francis Goodwin View profile

  Financial Times

  Nov. 6, 2006 -- Investment banks and hedge funds are being forced rapidly to adjust their trading strategies amid reported "panic selling" in the U.S. and European credit derivatives market last week.

  This heavy selling has driven the cost of insuring debt against default in the market for credit default swaps to record low levels -- signalling either that investors are very optimistic about corporate debt or that prices are so distorted that they are not being correctly paid for risk.

  The unexpected price swings are believed to have caused pain at some big investment banks and hedge funds, some of which are reportedly now being forced to sell to cover their loses, exacerbating the market swing.

 

LINK: Financial News Online

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