Japanese credit default swaps liquidity dries up

Trading in credit default swaps in Japan remained largely directionless this week in the absence of any significant end-client flow, and amid continued uncertainty regarding the government’s plans for the country’s ailing banks.

Liquidity was at a premium and bid-offer spreads remained wide. Trading volumes this week were at about a quarter of the normal level, according to one trader’s estimates. “There’s been no client flow,” the trader said. “It’s just been interbank dealing, and spread levels remained within a narrow range.”

Trading of credit protection on banks remained widely subdued throughout the week, as market participants awaited the release of a report on how to tackle Japan’s non-performing loan problems