Banks Reviving Synthetic Bets as Volcker Blasts Default Swaps

Wall Street is marketing derivatives last seen before credit markets froze in 2007, as the record bond rally prompts investors to take more risks to boost returns. Bank of America Corp. and Morgan Stanley are encouraging clients to buy swaps that pay higher yields for speculating on the extent of losses in corporate defaults. Trading in credit- default swap indexes rose in the fourth quarter for the first time since 2008, according to Depository Trust & Clearing Corp. data. Federal Reserve data show leverage, or borrowed money, is rising in capital markets.

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