Fitch’s analysis of the global credit derivatives market’s substantial growth in 2005 finds that three categories may have accounted for a majority of this growth and some credit default swap (CDS) trading in certain industrial sectors may have actually declined.

It reports that automotive companies, sovereigns and trading in standardized index contracts alone accounted for approximately 70% of the sector’s growth. Fitch’s analysis suggests that six industrial sectors may have actually experienced either no growth or a decline in trading volume, while growth in several other sectors was modest. In Europe, trading may have actually declined in a majority of industrial sectors, it adds. As a result, it appears that on the whole the representation of various sectors as a percentage of the total in terms of the number of trades declined in 2005.

Usage of index products continues to increase substantially, which may have affected some trading in single-name space, Fitch notes. “Some of the most heavily traded index contracts observed were those referencing high yield, high volatility, emerging market and low attachment point investment grade tranches, as investors continued to seek spread in a generally spread constrained environment,” it says.

Fitch also found a noticeable increase in the number of high yield names among the most traded corporate and sovereign list, including those at very distressed levels. “This is attributable, in part, to investor desire to shed or hedge exposure in some cases, as with the case of the autos; or, in certain cases, to seek greater exposure to what was perceived as good relative value,” it explains.