Buy-siders bemoan ‘dark arts’ of corporate bond CSA discounting
Litany of pricing variables fuel wide differences in how dealers calculate discount rates for collateral agreements
As more insurers and pension funds use corporate bonds as collateral in derivatives trades, concern is growing over how dealers are valuing these transactions.
Buy-side firms report little consensus among dealers over the method for calculating the discount rate for trades backed by so-called ‘dirty CSAs’ – credit support annexes that allow counterparties to post a range of collateral, including corporate bonds.
Jasper Livingsmith, head of G7 portfolio management at the European Bank for
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