Revamping Credit Market Allocations: The Case for CDS Indices

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The article "How to optimise an allocation to credit markets?" proposes a shift from bonds to Credit Default Swap (CDS) indices for investors seeking to optimise their credit market allocations. The argument is that strategies based on CDS indices have been outperforming bond credit markets, thanks to their liquidity, standardisation, diversity, and efficiency.

Exploring the Superiority of CDS-Based Strategies

The document further provides evidence that CDS-based strategies offer higher returns and lower drawdowns compared to their bond counterparts, as illustrated in multiple figures. This superior performance is attributed mainly to the liquidity advantage of CDS indices. This, coupled with the illiquidity spread premium, makes bonds only an attractive tactical allocation option post-major market shocks.

Feel intrigued? Click "Read report" to dive deep into this compelling approach to credit market allocations.