Demand for credit market driving product evolution

Lack of access to the credit market has seen innovation across credit market products, according to Greenwich Associates.

An increasing demand for access to the credit market is driving innovation in credit-market products like ETFs, credit default swaps and futures, according to a report.

Approximately 90% of US-based credit investors interviewed by Greenwich Associates said their ability to trade has been impacted by reduced liquidity in the credit market.

Demand for credit exposure remains strong and has been driven by non-traditional credit participants’ recognition of the importance of credit for portfolio risk management, the report said.

Non-traditional credit participants’ unwillingness to trade swaps and concerns around liquidity in corporate bond markets is driving innovation of products.

Kevin McPartland, head of research in Greenwich Associates’ market structure and technology practice, and author of the report, explained “credit index futures and fixed-income ETFs tied to standard benchmarks are both viable alternatives for these new and existing participants to pursue.”

In credit index futures, recent products developed by the Intercontinental Exchange (ICE) and Eris Exchange offer alternative routes to the credit market.

Similarly, participants can gain access to the credit market by investing directly in a basket of bonds and ETFs and credit investors are increasingly opting for fixed income ETFs.

McPartland concluded growth in these alternative products will likely see improved liquidity and opportunity within the credit market by offering more multi-product liquidity and hedging access.