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Record China Bond Failures Breathe Life Into CDS-Like Tool

  • Four CRMWs offered recently after more than two-year hiatus
  • Regulators call for more use of such risk mitigation tools
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Bloomberg’s Neha D’Silva reports on how Chinese companies are breathing life into the CRMW hedging tool.(Source: Bloomberg)
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Corporate debt investors navigating an expanding minefield of bond delinquencies in China are reaching for a hedging tool similar to credit-default swaps that was last used more than two years ago.

Since September, China Bond Insurance Co. and Bank of Hangzhou Co. have sold four instruments called credit risk mitigation warrants, which insure creditors against defaults of the underlying debt. These risk hedging instruments are set to become increasingly popular as bond failures pile up, according to Golden Credit Rating International Co.