UBS is looking to launch yen-denominated managed collateralized debt obligations with synthetic buckets of ABS. The firm believes the structure will be a first for the Japanese market.
"A lot of clients have been active in synthetic CDOs and there is a reluctance to accumulate exposure on the same names," said Masahiro Sekino, head of fixed income sales in Tokyo. As a result, investors are looking to alternative underlyings, such as U.S. residential mortgage-backed securities, he added. UBS recently began marketing yen-denominated deals with U.S. managers that will likely contain buckets of cash and synthetic ABS as well as some credit-default swap names.
Converting the deals into the domestic currency also makes it easier for investors to make the plunge. UBS is looking to close its first deals before year-end, likely in the more senior-rated tranches.
A credit structurer at a rival bulge-bracket house said he expects synthetic ABS deals to take off in Japan next year, following rounds of investor education. "CDS spreads remain tight and investors can pick up additional yield with ABS," he said.
The move also follows accounting clarifications in Japan that have significantly boosted demand for CDO tranches rated A or higher which may now avoid mark-to-market accounting (DW, 4/14). "It's been good news for the market," added Sekino, noting that as a result, investors in Japan are more willing to look at sophisticated structures.
