Last week's market correction--which drove credit spreads up from all-time lows--allowed a number of dealers, including JPMorgan and RBC Capital Markets, to print collateralized debt obligations they had been unable to execute weeks and months earlier. Managed and bespoke synthetic CDOs are able to print quickly because investors are lined up ahead of the trades. But structurers said volatility prevented full-blown issuance and most said they were waiting for more stability, even at the expense of some spread.
"It's a good start," said Rob Pomphrett, head of structured product syndicate at RBC in London, which executed GBP100 million seven-year A notes of Corinthian, a multi-currency synthetic investment-grade corporate CDO. It had been waiting to print since last year (DW, 1/19). "We would like to do more. But you need spreads to be wide for 24 hours at a time." He added, "I would rather have a small amount of sustained widening than a large amount of sustained volatility where occasionally spreads are wide enough to print."
The iTraxx Crossover index traded in a 203-236 basis point range last week, with dramatic daily swings. It was trading at 217 bps as DW went to press, up from 207 bps Friday morning. The HiVol ranged from 43-50 bps and the main from 22-26 bps. This created opportunity for single-name and index traders, however, with several reporting three to four times higher-than-normal trading volumes.
"The market has been waiting for this opportunity, but everyone wants to wait for more stability," said Ben Wilkinson, global head of structured credit trading and equity derivative product at Bank of America in London. "You don't want to be caught in front of a train at 200 miles an hour. But if we see stability over the next few days, I have a strong expectation that a number of deals in our pipeline will start to print."
