By Dion Rabouin

Aug 18 (Reuters) - Investors in the second quarter largely pulled back on bearish insurance bets on emerging market trades, a survey released on Friday showed, as trading of credit default swaps, or CDS, slid 35 percent from the previous quarter.

Emerging market CDS fell to $261 billion in the April-June period, according to a survey from EMTA, the emerging markets debt trading association. That is down from the first quarter's $404 billion in reported transactions - the highest CDS level in three years - and 9 percent below the level of CDS trading seen in the second quarter of 2016.

"It really doesn't surprise me that in a big bull market in emerging markets, people are not buying the insurance," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. "I would be surprised if it were the other way, really."

A credit default swap is a derivative credit instrument designed to transfer the risk of default by fixed-income products from one party to another, typically a financial institution. Investors buy CDS as protection against default by a sovereign country or company.

Emerging market stocks and bonds have been global outperformers so far in 2017. MSCI's gauge of emerging market equity indexes has risen 23.1 percent year-to-date, well above the U.S. S&P 500's 8.6 percent gain.

In bonds, the JP Morgan Emerging Market Government Bond Index has returned 7.4 percent compared to the Bloomberg Barclays U.S. Aggregate bond index, which has returned 3.2 percent.

The largest CDS volumes in the survey during the quarter were those on Brazil, at $46 billion, followed by Mexico at $24 billion and Turkey with $21 billion.

The EMTA survey also included volumes on nine corporate credits, with Brazilian state-controlled oil company Petrobras leading the way with $1.7 billion in CDS. EMTA surveyed 13 major dealers for the survey.



(Reporting by Dion Rabouin, editing by G Crosse) ((Dion.Rabouin@thomsonreuters.com; +1-646-223-5946; Reuters Messaging: dion.rabouin.reuters.com@reuters.net))