Credit Derivative Market Quo Status

--2006 $50 tril (buy and sell), 113% over 2005 --Leading the charge has been the traded indices, est $22.2 index products have been bought by year-end 2006 --CDX market will continue, with CDOs, LCDS, and traded indices as the biggest growth vehicles --while banks remain net buyers of protection, the global insurance and monoline industries continue to be key net sellers of protection at $396 and $355 bil, respecitvely, at year-end 2006. --concerns of market challenges near term: ----infrastructure: back office operations such as trade confirmations ----documentation (LCDS) --future concerns ----credit cycle --hedges are responsible for driving nearly 60% of all CDS trading volume and 1/3 of trading volume of CDOs. --future of hedge funds: large position + leverage will force some of them to close out positions --trading longer tenors is becoming more commonplace... --telecommunication and automotive companies along with sovereign occupied the top 10 slots on both a bought and sold basis for the most cited references entities.