Beyond the headlines: Useful tools for expanding the flow of credit

Author(s): Brian Rose - BlueMountain Capital Management, LLC Rob Brown, PhD, CFA - Eqis Capital Management, Inc.
Published: August 08, 2012

The credit market is one of the key means for transferring capital from savers, who wish to earn a return, to borrowers, who wish to purchase assets or expand an enterprise. In this way, one can imagine the credit market as a vast highway system, with roads linking savers and borrowers. Until the last 20 years, the two main instruments in the credit market (the cars on the road) were corporate bonds and loans. But in the last 20 years, the derivative market in credit has grown in size and importance, creating a new kind of vehicle to transport capital across the system. Credit derivatives can often travel where bonds and loans cannot, and new roads were created to allow capital to flow via derivatives.