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Derivatives

PIMCO Explores Local Currency CDO

Fixed income giant PIMCO is exploring adding currency options to collateralized debt obligations that reference debt denominated in a range of different currencies.

Fixed income giant PIMCO is exploring adding currency options to collateralized debt obligations that reference debt denominated in a range of different currencies. Local-currency debt in many emerging markets offers better spreads right now than other forms of emerging market debt, said Powell Thurston, senior v.p.

Equity investors stand to benefit further if the local currencies continue to strengthen against the U.S. dollar, structurers noted. Barclays Capital andJPMorgan are working on similar combinations of currency and credit risk and PIMCO has been in discussions with Goldman Sachs. The deals would reference about 15 currencies.

In October, Citigroup priced Evolution EM CDO, the first CDO based on local currency debt. The deal was issued by emerging market specialist Sydbank and the currency risk was not hedged (DW, 10/13).

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