Bond investors up CDS exposure to manage liquidity troubles

Bond managers have been steadily increasing the use of credit default swaps (CDS) in their portfolios as liquidity issues which emerged in the corporate bond space last year continue to plague the sector.

Chris Bowie, head of credit portfolio management at Ignis Asset Management, said the turnover of CDS across his credit portfolios almost doubled in 2012 compared to 2011, when the credit team turned over around £2bn worth of CDS. CDS' allow managers to trade positions much more effectively and cheaply, and have gained in popularity in recent years. They have proved particularly attractive to bond fund managers, and Ignis went as far as to launch an Absolute Return Credit fund last summer to invest solely in CDS. Bowie, who is in charge of the fund, said CDS allow investors to keep ...