BlackRock, Pimco Push for Credit Swaps Clearing Amid Junk Routby and
BlackRock Inc., Pacific Investment Management Co. and BlueMountain Capital Management are among a band of 24 investors aiming to revive a shrinking part of the $13 trillion credit-default swaps market.
The investor group, which also includes Apollo Global Management LLC and Citadel LLC, said in a statement they would move to settle credit-default swaps transactions linked to individual companies and countries through clearinghouses. The derivatives allow investors to hedge against losses and are an important tool at a time when corporate failures are rising and money managers are increasingly worried about a meltdown in some parts of the debt markets.
The move could prompt dealers to offer better prices to customers who agree to cleared trades. At least two of the largest Wall Street credit swaps dealers, Goldman Sachs Group Inc. and Credit Suisse Group AG, are already considering plans to offer different pricing for cleared trades to lower their costs.
“The single-name CDS market is not functioning well at the moment,” said William De Leon, global head of portfolio risk management at Newport Beach, California-based Pimco. “We are looking at ways to improve liquidity and we think this will help the market. There will be some bifurcation, but this will only help not hurt the CDS market."
Net wagers in single-name swaps have declined to $649 billion from more than $1.58 trillion in late 2008, when the Depository Trust & Clearing Corp. started reporting outstanding positions in the market.