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Sept. 8 (Bloomberg) -- Investors buying the riskiest bank bonds want be able to insure against losses in future, according to Barclays Plc.

Credit-default swaps linked to banks’ so-called Tier 2 notes will start this month to address Swiss capital regulations, which are more stringent than in other countries. Investors now want contracts extended to protect additional Tier 1 bonds, according to Soren Willemann, head of European credit strategy at Barclays in London.

The securities, known as contingent capital bonds or CoCos, convert to equity or are written down after a bank breaches preset capital ratios. Bondholders are eager to be able to hedge against losses on the riskiest notes because the market is forecast by UBS AG to grow to $80 billion in Europe by the end of the year.

“Tier 1 CoCos are already a big market and there’s much more to come, so it makes sense trade CDS on this,” Willemann said. “There might be initiatives to look at Tier 1 CoCo CDS next year.”

There are currently no plans to extend the insurance, according to the Nick Sawyer, spokesman for the International Swaps & Derivatives Association in London.

Rules governing the Markit iTraxx Subordinated Financial Index of credit-default swaps will be amended to include Tier 2 contracts on Swiss banks when the next version of the benchmark starts trading Sept. 22, index administrator Markit Group Ltd. said last month.

To contact the reporter on this story: Abigail Moses in London at amoses5@bloomberg.net To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Michael Shanahan

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