T Zero, the company that offers users "agnostic connectivity" in the OTC market and which is owned by Creditex, the leading elcontronic trading platform for credit derivatives, has announced that is has partnered with a loans settlment provider to provide further processing capabilities. The company in question is called Trade Settlement and is part of a push by Creditex to corner the loan-only CDS trading market that is expected to explode in the coming months. Notably this announcement also coincides with the launch by Creditex of LCDX - which is a dealer backed credit default swap index that will doubtless prove a further philip for the already liquid market.

I can certainly see the logic in the move - DTCC DerivServ did something similar a few months back by partnering with CLS bank to provide settlement services for credit derivatives with a direct link from their Trade Information Warehouse. OTC post trade servicing is frankly a huge pain and the more automated services that can be offered to clients the better I say. However (and this may be the product of ignorance rather than insight) the whole feel of the loan market and the offloading of risk feels like a bubble waiting to burst to me. Years ago it was the central banks that controlled the world of lending with their rate hikes. However in recent times the credit frenzy seems to have gone on unabated despite rate rises. In an article that I read in the FT this morning it stated that in the last week alone $4.5bn of new CDOs hit the market with another $57.7bn in the pipeline. As it said in the article, (and the assets are actually structurally quite similar) imagine the effect of these numbers if we had been talking about Mutual Funds and not collateralised instruments. And all is apparently not rosy in the CDO land anyway, losses are starting to rack up new firms (such as Park Square Capital) emerging with the stated intention of preying on CLO shakeouts. As credit spreads tighten below the 250bp tipping point (they are currently hovering around 225bps) these instruments stop being as attractive as they once were. Buy Side managers however are (somewhat typically) slow off the mark and (bar the adventurous few) are only now waking up to the possibilities of the collaterised market - F&C announced that it was looking for experienced CDO people this week - I just worry that they may be too late to offer any significant value to their clients.....