Why Credit Derivatives Are Losing Some of Their Mojo

The video discusses the current challenges with credit derivatives, particularly their mismatch with investor portfolios, which became evident during the 2018 financial crisis. Investors are seeking alternatives like ETFs and total return swaps. The popularity of hedging has surged, with both investment-grade and high-yield credit performing well. Trade wars have heightened risk awareness, leading to increased interest in ETFs due to their liquidity and ease of trading.

What was a significant issue with credit derivatives in late 2018?

• They did not match investor portfolios.

• They were too expensive.

• They were too complex to understand.

• They were illegal to trade.

Why are some investors turning to ETFs as an alternative?

• ETFs offer better returns than derivatives.

• ETFs are less risky than derivatives.

• ETFs are easier to understand.

• ETFs can be used to express a view by going long or short.

What is one reason for the increased popularity of hedging?

• A lack of alternative investment options.

• A decline in high yield credit.

• A rise in trade war issues.

• A decrease in investment grade credit.

What makes high yield bond ETFs particularly attractive to investors?

• They are backed by government bonds.

• They are risk-free investments.

• They are very liquid and easy to trade.

• They offer guaranteed returns.

What is a key factor driving the attention towards ETFs?

• Their liquidity and ease of trading.

• Their high fees.

• Their limited availability.

• Their complexity.