Longer-dated managed synthetic collateralized debt obligations on global portfolios are gaining steam in Japan since accounting changes brought new investors to the market. Accounting rule amendments in the country have made it more attractive for investors to plunge into senior rated-tranche deals (DW, 4/14).
"We're seeing a lot of new accounts now taking an interest in the market," said Dean Rostrom, managing director in structured credit marketing at Deutsche Bank in Tokyo. One credit official in Japan said CDO deal flow is now up over 30% compared to the first half of last year.
Following the eased rules, investors in CDOs, such as insurers or regional banks that are coming back into the market, are shifting from five-year static transactions to seven-or-ten-year managed deals as a way to pick up additional yield, primarily from the A to AAA space. Over 80% of CDOs are on portfolios of overseas credits, mainly on European and U.S. underlying, given the relative tightness in Japanese names, estimated the official. "This should be the benchmark deal for the next several months, though at the end of the year there could be a revision," said a credit head at a European house in Tokyo. He explained that as investors are willing to look at longer-dated deals, they now prefer to have a third party manager in place.
