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 Citi 239,928.76 921 8.16%
2 JPMorgan 222,471.63 995 7.57%
3 Bank of America Merrill Lynch 215,931.77 721 7.34%
4 Barclays 184,694.55 670 6.28%
5 Goldman Sachs 158,679.40 515 5.40%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 32,522.19 61 6.59%
2 BNP Paribas 32,284.10 130 6.54%
3 UniCredit 26,992.47 123 5.47%
4 SG Corporate & Investment Banking 26,569.73 97 5.38%
5 Credit Agricole CIB 23,807.36 111 4.82%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 10,167.68 46 8.82%
2 JPMorgan 9,894.90 42 8.58%
3 Citi 8,202.25 45 7.11%
4 UBS 6,098.17 23 5.29%
5 Credit Suisse 5,236.02 28 4.54%