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
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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 JPMorgan 98,954.30 387 8.35%
2 Citi 93,414.15 342 7.88%
3 Bank of America Merrill Lynch 79,015.94 294 6.67%
4 Barclays 78,031.26 279 6.58%
5 HSBC 64,526.48 308 5.44%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Bank of America Merrill Lynch 8,707.60 16 10.97%
2 Deutsche Bank 5,064.63 12 6.38%
3 Commerzbank Group 4,572.56 19 5.76%
4 BNP Paribas 4,242.70 20 5.34%
5 Citi 3,664.95 10 4.62%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Morgan Stanley 1,958.99 12 11.29%
2 Citi 1,562.43 9 9.01%
3 JPMorgan 1,371.27 7 7.91%
4 Bank of America Merrill Lynch 1,345.53 6 7.76%
5 UBS 1,219.44 7 7.03%