Buy side turns to credit skew notes for yield pick-up

Revival of credit derivatives arbitrage strategy targeted at insurers and private banks

CDS index arbitrage trade is being packaged into skew notes aimed at institutions hungry for yield

A complex credit derivatives arbitrage strategy once popular with hedge funds has found a new home among European pension funds, insurers and private banks responding to both regulatory pressures and rock-bottom interest rates.

Dealers have been packaging the credit default swap (CDS) index arbitrage trade, which exploits mispricings between CDS indexes and their underlying constituents, into so-called skew notes and marketing them to yield-starved institutions as a twist on traditional bank