Investors are increasingly reaching for protection of various sorts ahead of next week’s Brexit vote. The credit derivatives market is the latest to experience the surge as corporate CDS indices spike on extremely high volume and perhaps more troubling, UK Sovereign CDS has spiked to its highest in over 3 years as fears of devaluation or default rise.
As Bloomberg reports, debt investors rushed to hedge against the risk that Britain votes to exit the European Union this week as polls show a departure has become a real possibility.
Credit derivatives trades on investment-grade debt in Europe already exceeded the average for a full day by 1 p.m. in London on Friday, according to data compiled by Bloomberg. Trading volumes across global credit-default swap benchmarks soared this week, sending up volatility and the cost to protect against losses.
More than $50 billion of protection on Europe’s benchmark changed hands this week, data compiled by Bloomberg show. About $13 billion of the contracts traded on Tuesday, the highest daily volume since March 21, after Britain’s biggest-selling newspaper the Sun said it backed a Brexit.
Volumes on Friday were $5.1 billion as of 1 p.m. in London, more than five times the historic average for that time of day and higher than the full-day average of $3.1 billion, according to the data.
“Many viewed Brexit as unlikely enough that they didn’t have to worry about it, and now they’re panicking to some degree,” said Gordon Shannon, a London-based portfolio manager at TwentyFour Asset Management, which oversees 6.4 billion pounds ($9.1 billion) of assets. “People are putting on last-minute hedges.”
