Fitch warns on credit default swaps

It's been phenomenal how hedge funds have transformed the credit default swap market. It was once an arena mainly for legitimate hedging. Now it's a venue for all-out trading and speculation as well. According to an article on ii.com, hedge fund credit assets increased 600 percent from 2000 to 2005. I'm sure it has grown ever more since then, as more funds use these swaps to play the buyout boom. Hedge funds now account for 60 percent of the volume. Of course, they're leveraged up pretty heavily. So it's no wonder that Fitch, among others, is sounding some quiet alarms. There is the distinct possibility, Fitch says, of a "forced unwind" that would affect all investors. There's long been the view out there that if the market were to crater for some point, we could get a massive sell-off with far-reaching consequences. It might spark a back-office nightmare as well.  

For more:
- here's the article from ii.com