Issuance of leveraged super senior collateralized debt obligations is tipped to step up this month after a spread rally in junior synthetic tranches during July has pushed value to the high reaches of the capital structure, particularly at the seven-year tenor. In addition, idiosyncratic risk is viewed by market participants as more of a threat than systemic risk, which makes these credit event-insulated super senior tranches a more attractive investment.
Strategists at Barclays Capital attributed limited bespoke CDO activity, combined with a benign idiosyncratic risk environment and higher allocations to structured credit hedge funds with driving the equity rally. Another strategist agreed, also noting movements in five-year tranches--in which equity is outperforming mezzanine--is evidence of bespoke LSS issuance. "It's a classic sign people are doing super senior and dealers are hedging by buying protection on everything else," he noted.
