Credit default swaps on subordinated financial debt remain undervalued, according to a report from Morgan Stanley analysts. An index of subordinated-debt swaps hit a three-year low last month after ISDA proposed a rule change that would make new contracts more appealing than those already written. "This proposed change is clearly valuable for buyers of protection in a new contract, in specific scenarios," the report says. "We think the market underestimates the utility of existing contracts."
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