Source:
BloombergJuly 20 (Bloomberg) -- Wall Street’s hottest new product is fear.
Almost two years after Lehman Brothers Holdings Inc.’s failure caused world markets to seize up, Pacific Investment Management Co. is planning a fund that will offer protection to investors against market declines of more than 15 percent. Morgan Stanley strategists estimate demand for hedges against such cataclysms helped drive as much as a fivefold increase last quarter in trading of credit derivatives that speculate on market volatility.
The efforts to protect against another disaster, which helped drive up the relative costs of the most bearish credit derivatives to the highest in two years, show that investors’ psyches still haven’t recovered from the Lehman bankruptcy on Sept. 15, 2008, which erased $20.3 trillion in stock market value worldwide and caused credit markets to freeze.
“Everyone is starting to realize that this is going to be a much longer, much more difficult path to recovery,” said William Cunningham, head of credit strategies and fixed-income research at Boston-based State Street Corp.’s investment unit, which oversees almost $2 trillion. “It’s really quite fragile and vulnerable in a way that we haven’t seen in our lifetime.”
Read more:
http://noir.bloomberg.com/apps/news?pid=20601010&sid=a0tbiS7HfS60