The global markets for credit derivatives grew by 75% over the year to the end of June 2007. Incidentally, this is also the slowest growth in volumes since 2003, attributed mainly to an uninspiring rise of just 32% from USD 34.42 tn at the end of Dec 2006 to USD 45.46 tn at the end of June 2007, while volumes for the corresponding period last year, had more than doubled.
Interest rate derivatives, the biggest component of the over-the-counter derivatives markets, rose by 38 % to USD 347 tn during the first half of this year. "We expect this strong volume to continue over the 2007 second half, as privately negotiated derivatives have provided liquidity and functioned efficiently through the recent volatility," said Robert Pickel, chief executive of ISDA. Equity derivatives, which include privately negotiated swaps, options and forward contracts, grew 40 % in the first half, and are up 57% over the past year, to USD 10.1 tn.

However since July 2007, following the shake-out in the credit markets and accompanied by fears of credit crunch, trading volumes had surged for derivative index contracts that allows investors to hedge risk of corporate default on loans. According to Anthony Ryan, the US Treasury's assistant secretary for financial markets, credit derivatives have benefited investors by offering more liquidity, portfolio diversification and ability to manage and transfer credit risk. "The ability to securitise credit has expanded the sources of capital and credit for homeowners, business owners and other borrowers throughout the global economy," Mr Ryan said. Cautioning investors to do a better risk evaluation for complex products, he added "Insufficient understanding or failure to perform an independent and adequate due diligence prior to making an investment decision is simply unacceptable."

Chance favors only the prepared mind.