Avoiding the crush

Credit spreads in Japan have been crushed even lower this year, which has meant that more investors are taking on single-tranche CDOs referenced to foreign credits as a means of enhancing yields. Mia Trinephi reports

It has been a one-way street for Japan’s credit derivatives market. Japanese credit default swap (CDS) spreads have just kept grinding tighter and tighter, driven by a steady demand from the country’s investors – and particularly regional banks – to invest in synthetic collateralised debt obligations (CDO), seen as a higher-yield alternative to Japanese bonds.

It has meant the credit market has been dominated by an overwhelming number of protection sellers, with the market driven by technical