Evergrande Shock Makes Corporate Bond Traders Focus on Liquidity
- Derivatives offered exit that cash debt couldn’t: Felsenheimer
- Trading on CDS indices spiked as volumes of cash bonds slumped
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When investors wanted to flee the fallout from China Evergrande Group, those in Europe’s 500-billion euro ($584 billion) high-yield bond market found some of the normal escape routes blocked.
As trading stagnated in the market for the region’s riskiest bonds, investors were reminded of the problem of buying illiquid securities from an array of sometimes small unlisted companies. When it came to the crunch, credit derivatives indexes offering insurance on junk bonds proved the best avenues to unload positions, according to Jochen Felsenheimer, managing director at XAIA Investment in Munich who trades CDS and bonds.