Falling default rates and an almost unquenchable appetite for structured products will likely drive spreads for the remainder of the year, according to delegates at last week's Structured Products Forum in Hong Kong.
"Excess liquidity will drive spreads down for the remainder of the year," according to Eric Slighton, head of Asia-Pacific credit derivatives at Barclays Capital in Hong Kong.
Slighton said bankers have been looking at the techniques in other asset classes, including introducing inflation-linked, callable and step-up features, to boost the yield.
In addition, cash reserves are pilling up, which means when spreads widen there may be more money coming in and pushing them tighter again. "Targets set for investors are becoming more difficult to achieve and at the same time in Asia cash reserves are piling up," said Aditya Bhugtiar, v.p. in structured credit sales at ABN AMRO in Singapore. He added, "There's a real hunt for yield."
