USFE to launch credit futures on Fannie, Freddie
Mon Jun 4, 2007 11:12am ET
NEW YORK, June 4 (Reuters) - The U.S. Futures Exchange (USFE), the former Eurex US market, on Monday said it will launch the first credit derivatives futures contract that allows investors to bet on the credit quality of Federal agency debt, including Fannie Mae (FNM.N: Quote, Profile , Research) and Freddie Mac (FRE.N: Quote, Profile , Research).
"Agencies are the largest issuers of corporate debt and they deserve a prominent place in credit derivative trading," said David Boberski, head of interest rate strategy at Bear Stearns & Co (BSC.N: Quote, Profile , Research), which collaborated with USFE on the contracts, in a release.
"Agency credit default swap futures are a rare example of a product that is relevant to both credit and interest rate traders," Boberski said.
As mortgage finance companies Fannie Mae and Freddie Mac's portfolios are very sensitive to interest rate change.
The futures contract will begin trading with a government tranche of the CDX index that includes credit default swaps on Fannie Mae and Freddie Mac, which is expected to be listed in the fourth quarter.
The CDX index series include credit derivatives that allow investors to hedge against default risk on investment grade, crossover, high yield and emerging market debt.
"Default swaps from both Fannie Mae and Freddie Mac are included in the tens of trillions of dollars referenced to the CDX family of indexes," Satish Nandapurkar, chief executive of USFE said in the release. "Yet, there has never been a distinct 'government' tranche to represent the highest quality of credit risk."
The notional principle outstanding volume of credit default swaps rose 33 percent to $34.5 trillion in the second half of 2006. |
