High volatility across issuers in the structured finance collateralized debt obligation market has firms pitching relative value trade ideas that put credit-default swaps on CDO tranches against the single names found in the deals.
Specifically, traders are looking to get short on asset-backed securities originated in 2006 when credit quality was less than stellar, according to traders. The idea behind the trade is to sell protection on a tranche and compare it with where you can buy protection on individual names.
Most firms across the Street have started pitching the trades now that liquidity in CDS on CDOs has reached a critical mass, a trader explained.
