Emerging markets Q3 CDS trading volumes rise; Gazprom surges-EMTA

Reuters

By Daniel Bases

NEW YORK, Nov 22 (Reuters) - Emerging market credit defaultswap contract trading volume rose 39 percent to $297 billion inthe third quarter of this year versus the same period in 2012,according to data released on Friday by EMTA, the tradeassociation for the emerging markets.

CDS act as a kind of insurance for investors who own debt,in this case debt issued by sovereign nations, against potentialdefault or restructuring.

Volumes were up 7 percent over the second quarter of 2013,the survey of 13 major dealers showed. Volumes have risen forthe last four quarters, EMTA said.

The largest trading volumes were in Brazilian CDSinstruments, with $51 billion changing hands, down from the $65billion reported in the second quarter. However, trading inTurkish CDS increased slightly to $34 billion in the thirdquarter from $33 billion in the second quarter.

Russian CDS trading was reported at $31 billion in thelatest reporting period.

Jane Brauer, senior strategist at Bank of America MerrillLynch, said that in Europe, the Middle East and Africa there hadbeen a change in focus among non-traditional emerging markethedge funds as they looked at the relative valuation playsbetween CDS and currencies. Trading focused toward the threemain CDS contracts that were not subject to European Unionpositioning limits: Russia, Turkey and South Africa.

"In Latin America, however, trading volume is back to thesecond quarter levels, before this year's volatility began," sheadded.

Nine corporate CDS contracts were tracked as well.

Russian state-owned energy company Gazprom showeda 177 percent increase in volume from the second quarter of thisyear to $7.5 billion, making it the most actively tradedcorporate CDS contract.

Following Gazprom in second and third place were state ownedenergy companies in Mexico and Brazil, both of whom saw declinesin trading volumes.

Third-quarter trading volumes for CDS contracts in Mexico'sPemex fell to $1.7 billion from $2.3 billion in thesecond quarter. Brazil's Petrobras CDS volumesdropped to $1.3 billion from $1.6 billion over a similar period.

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