(Bloomberg) -- Europe has seen the busiest start to August for credit default swap trading since at least 2013, defying the traditional summer lull. 

Almost 120 billion euros ($121.9 billion) of iTraxx Europe and Crossover index contracts changed hands in the first half of this month, based on Depository Trust and Clearing Corporation data compiled by Bloomberg. Volumes in that two-week period were almost double the 10 year average.

There are various drivers behind the jump. Below-expectation inflation data from the US led investors to reprice risk, keeping traders in the market during what is traditionally a quiet holiday period. They are also seeking to recoup losses from a wave of sharp selling earlier this year, while investors who yanked cash out of the market during June’s selloff are now looking for ways to deploy it.


Credit default swaps are a key focus as they are relatively easy to trade. Bond market liquidity has suffered, as volatility shut the door to corporate bond issuance and as the European Central Bank scales back asset purchases, according to Stuart Campbell, head of trading at BlueBay Asset Management.

Indicators of credit risk dropped after data from the US on Aug. 10 showed inflation decelerating more than expected in July, taking pressure off the Federal Reserve to hike interest rates aggressively.

The iTraxx Europe index of investment-grade corporate credit-default swaps is indicated at about 99 basis points, rising this week after recently hitting its lowest level in more than two months. The Crossover index of junk-rated firms is following a similar pattern.

“A powerful credit rally during a period of low liquidity in the bond markets suggests investors needing to re-risk, and many would need to do so through CDS indices,” said Viktor Hjort, BNP Paribas SA’s global head of credit strategy.

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