The market for derivatives of the risky corporate loans that are generally used to fund private equity buy-out deals is beginning to enjoy improving trading volumes and many are predicting that the next 12 months will see explosive growth. 

The US market for default swaps on junk-rated loans – which provide a kind of insurance against non-payment of the debt – has seen outstanding notional volumes jump to $52.1bn in the first four months of 2007 from $31.6bn at the end of last year, according to estimates from Lehman Brothers.