A new direction

A growing number of dealers in Japan are looking at combining equity and credit derivatives technology to create higher returns. The challenge is to find institutions that can invest in these products, and to persuade the rating agencies to rate them. Nick Sawyer reports

It is getting increasingly difficult for Japanese investors to make a decent profit by investing in the country’s credit market. Just over a year ago, investing in a portfolio of Japan’s 50 most liquid credit default swaps (CDS) would have offered investors around 80 basis points over five years. That same portfolio now pays a fraction of that amount, with the sheer volume of Japanese investors selling protection in return for premium pushing spreads to historic tights. The CJ 50 index, which