Five-Year Bespoke CDOs Bounce Back

Bespoke collateralized debt obligations with five-year tenors have returned to the structured credit stage after a drought of several months.

  • 10 Mar 2006
Email a colleague
Request a PDF

Bespoke collateralized debt obligations with five-year tenors have returned to the structured credit stage after a drought of several months. At least two large transactions have been issued this month and credit officials say they mark a comeback for that spot in the curve since dealers all but abandoned it chasing fatter seven- and 10-year returns.

The shift back has been prompted by the imminent change in Standard & Poor's rating methodology, which has made it easier to get attractive ratings for CDOs with less subordination. Dealers said the return of deep five-year liquidity will feed investors who have a preference for implementing credit views on shorter horizons. "There is a universe of investors out there who don't invest beyond five years," said one buyside official, adding the five-year structures are a hot topic on the street.

Another strategist said the five-year issues had a ripple effect on five-year iTraxx correlation in early March as dealers offset their positions through the index tranche market. The five-year, 3-6% tranche tightened to around 70-72 basis points from the mid 80s in February and the five-year 0-3% slice widened out by a couple of bps early in the week. "This could also be pre-emptive with people hedging before they put out new five-year deals," he added. It could not be determined which houses printed this month's private, most likely reverse inquiry, transactions. Deal sizes could also not be ascertained.

S&P's new Evaluator3, allows dealers to pay higher returns on shorter dated, investment-grade tranches because they require less subordination (DW, 1/13). "Five-year spreads benefit most on a relative basis," wrote Lorenzo Isla, head of European structured credit strategy at Barclays Capital in London, in a recent report. He noted AAA-rated portfolios now require 3.6% rather than 4.7% subordination. This picks up yield at high ratings, without requiring structures go out to seven or 10 years to get extra return.

  • 10 Mar 2006

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 328,982.98 1272 8.11%
2 JPMorgan 320,525.86 1391 7.90%
3 Bank of America Merrill Lynch 295,678.15 1012 7.29%
4 Barclays 247,860.38 923 6.11%
5 Goldman Sachs 218,821.95 732 5.39%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 46,136.68 182 7.00%
2 JPMorgan 44,443.20 92 6.75%
3 UniCredit 35,639.50 153 5.41%
4 Credit Agricole CIB 33,211.72 160 5.04%
5 SG Corporate & Investment Banking 32,419.80 126 4.92%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 13,755.50 61 8.97%
2 Goldman Sachs 13,204.47 65 8.61%
3 Citi 9,716.40 55 6.34%
4 Morgan Stanley 8,471.86 53 5.53%
5 UBS 8,248.12 34 5.38%