Investor demand for equity-tranche risk has driven issuance of bespoke collateralized debt obligations higher in the first half, according to dealers. There was a glut of activity in May and June when spreads widened on the back of equity volatility. Dealers estimate this pushed up volumes to more than this time last year and possibly more than the whole of 2005. One dealer put issuance at above USD400 billion.
"The growth in trading equity index tranches is very evident," said one London-based dealer. This growth has given rise to innovative ways to wrap the first-loss piece of CDOs, including zero-coupon equity structures and all-running and all-upfront equity notes (DW, 6/9).
