Barclays Capital has priced a giant private synthetic collateralized debt obligation, which in combination with a flurry of other deals hitting the market has driven tight credit spreads even tighter. Several credit pros pointed to the size of Barclays' seven-year deal, which references a several billion dollar portfolio of U.S. and European investment grade credit-default swaps, as being a major factor driving spread tightening. Andrew Whittle, European head of credit derivatives at Barclays Capital in London, said the firm does not comment on private transactions.
The North American TRAC-X and iBoxx indices, which comprise portfolios of 100 and 125 credit-default swaps, respectively, have moved in five basis points over the past few weeks. Traders said this was a huge move for the diversified portfolios. Last week TRAC-X was trading at 55bps, in from around 60bps at the end of November, while iBoxx came in to 46bps from 51bps. Both widened again toward the end of the week.
The increase in the amount of single-tranche CDOs means that many structuring houses are issuing deals at the same time because the timing is driven by quantitative models. In a full capital structure CDO, the derivatives houses pull the trigger when they have lined up all the clients, whereas because there is often only one investor in single-tranche deals there is more flexibility about when they can be issued. In many instances CDO shops that are ready to issue deals will wait up to five weeks for the best time to price a deal.
