Synthetic collateralized debt obligation structurers hunting for assets ensured that any spread widening in credit derivatives was immediately quashed. Traders say CDO printers keep spreads rangebound across the board, pointing to British Airways as the clearest example.
British Airways widened to 310 basis points early last week from 265 basis points the week before because of a combination of terrorist attack fears and repositioning by bond investors. But the airline's spreads had retraced by Thursday.
Standard & Poor's rates British Airways double-B plus with a stable outlook, while Moody's Investors Service has it at Ba2 with a negative outlook.
Carole Bernard, securitization research analyst at Deutsche Bank in London, says spreads are being kept tight because of an imbalance in supply and demand. The demand stems from investors such as commercial banks and insurers upping their allocation to CDOs because of the better yield they offer compared to other fixed-income assets.
In addition, the demand for CDOs is expected to increase this year, because so many bonds are maturing and the investors in those assets will be looking to put the cash to work. Bernard says there is a bumper crop of bonds--estimated to be E130 billion--set to mature because it is five years since the introduction of the euro.
Five-Year Credit Protection On British Airways
