Bankers have long urged companies to use credit derivatives for pre-hedging bond issues and those with excess liquidity are turning to the market to invest their surplus cash.
The bankers' argument is that corporates should use credit derivatives to protect against potential adverse movements in credit spreads, much as they use interest rate swaps to hedge against adverse movements in interest rates. As credit spreads â funding costs above Libor â and credit default swaps are closely correlated, issuers should be able to use the credit default swaps market to lock in future funding costs.
