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To: TFF who wrote (11904)	4/16/2008 4:51:40 PM
From: TFF	Respond to of 12617

Credit-Default Swaps Market Grows to $62.2 Trillion, ISDA Says By Shannon D. Harrington and Abigail Moses April 15 (Bloomberg) -- The global market for credit-default swaps expanded 37 percent to cover $62.2 trillion of debt in the second half of last year as investors used the contracts to protect against losses triggered by the U.S. housing slump. Contracts outstanding rose from $45.5 trillion in June 2007 and $34.5 trillion as of December 2006, the New York-based International Swaps and Derivatives Association said in a statement today. They had doubled in each of the previous three years as investors used the derivatives as a cheaper and easier way to invest in corporate debt. Credit derivative trading rose as the global credit crisis caused more than $245 billion of asset writedowns and losses at the world's biggest banks and securities firms. The cost to protect corporate bonds from default using contracts on the benchmark Markit CDX North America Investment Grade Index more than quadrupled to a record 198.5 basis points last month from 42 at the end of June, according to London-based CMA Datavision. Credit-default swaps, traded by banks and securities firms including JPMorgan Chase & Co. and Goldman Sachs Group Inc., are the fastest growing part of the $454.5 trillion market for over- the-counter derivatives, financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. ``While the amounts at risk are just a fraction of notional amounts, these give us a good sense of market activity,'' ISDA Chief Executive Officer Robert Pickel said in a statement from the organization's annual meeting in Vienna. Market Value Using data from the Bank for International Settlements, ISDA estimated the gross market value of all outstanding derivatives contracts is about $9.8 trillion. That would be the amount owed to banks or investors if the contracts were liquidated. Subtracting off-setting payments owed between trading partners, that number would fall to about $2.3 trillion, the group said. ISDA estimated the market size by surveying its 215 primary members, mostly banks and securities firms. The survey covers derivatives that are privately negotiated between banks, hedge funds and other institutional investors. The contracts, conceived about a decade ago to help bondholders hedge against the risk of default, are commonly used to bet on the ability of companies to repay debt. Sellers are paid an annual premium, usually over five years. Should the company fail to meet its debt obligations, the buyer is paid face value in exchange for the underlying securities or the cash equivalent. Interest-Rate Swaps Credit-default swaps increased more than three times as fast as contracts on interest rates, the largest part of the derivatives market. Interest-rate derivatives, including swaps that switch between fixed and floating-rate payments, rose almost 10 percent to $382.3 trillion in the second half, ISDA said. Equity derivatives, which are used to bet on the direction of a company's share price or hedge against losses, were little changed at a value outstanding of $10 trillion. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.