U.S. investors, searching for yields on a flat curve, are turning to longer-dated collateralized debt obligations for greater relative value. Credit officials in New York have noted an increase in the number of 10- and especially seven-year trades referencing steeper points on the yield curve and offering more attractive pricing options. A similar trend is occurring on the other side of the pond (DW, 9/2/05).
While traders have seen increased interest across longer-dated maturities, "Seven year is the sweet spot," one trader said. Seven-year deals made up 39% of all trades in 2005, compared with five-years deals which accounted for 32%, down from 55% in 2004, said Robert McAdie, global head of credit strategy at Barclays Capital, in a conference call last week. "Seven-year deals still offer high-quality risk with the ability to earn spread. Five-year doesn't offer that spread anymore," explained a trader.
