The major rating agencies are investigating methods which will allow them to rate the volatility risk of tranches of synthetic collateralized debt obligations. Officials at Fitch Ratings and Standard & Poor's said investors want more transparency and are paying less attention to credit deterioration and more attention to the mark-to-market movements of their investments.
Kenneth Gill, managing director at Fitch, noted during a panel discussion on European CDOs that there is a need for a methodology to give forward-looking views on the "stability of a tranche relative to all tranches in that sector."
Similarly, Perry Inglis, head of the European CDO group at S&P in London, told DW, "We want to project forward and give an idea of the potential volatility of a tranche relevant to other tranches." Namely, he noted, S&P wants to look at how two AAA tranches can behave differently and how they perform compared to a corporate bond of the same rating.
Inglis said the development of a surveillance tool is difficult because of the huge number of traders which must be tracked.
