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Hedge fund CFOs are one of the most recent innovations within the CDO market with the completion of the first transaction in June 2002. Unlike traditional CDOs, which are securitizations of bonds or loans, the assets securitized in hedge fund CFOs are the shares of various hedge funds. Therefore, hedge fund CFOs differ in important respects from traditional CDOs in regard to key risk factors. While the performance of a traditional CDO relies mainly on the credit performance of a pool of underlying bonds or loans, i.e., default and recovery rates, the performance of a hedge fund CFO depends on the net-asset value (NAV) of the underlying hedge fund shares at the liquidation date. The NAV of these shares depends on the performance of a potentially endless array of debt, equity, hybrid, or derivative positions, held long or short, and representing a diverse and often abstract assortment of financial risks and rewards. Below is a description of the main differences between traditional CDOs and hedge fund CFOs and how these translate when modeling these products for rating purposes. Over-Collateralization

Northern Rock, a U.K.-based lending and savings bank, has entered a foreign exchange swap on a recent USD600 million floating-rate five-year bond. Phil Horner, head of derivatives in Newcastle-Upon-Tyne, said it issued a dollar-denominated bond to increase investor diversity. Since the bank only has operations in the U.K., it enters swaps to switch foreign currency denominated liabilities into sterling debt.

AIG Trading Group has scaled down its foreign exchange market making to focus on structured deals. The move comes less than a year after it attempted to beef up its foreign exchange and commodities trading operations and follows the merger of AIG Trading and AIG Financial Products in the summer (DW, 6/2).

ABN AMRO recently hired Rajiv Baruah, co-head of Indian global markets at Deutsche Bank in Mumbai, as v.p. and derivatives marketer in the Asian debt markets origination group in Singapore. Baruah confirmed the move but declined further comment.

Last week's 25 basis point interest rate hike in Australia took derivatives professionals by surprise and will likely lead to a massive jump in volumes in the coming weeks. Gary Vassallo, head of derivatives at Macquarie Bank in Sydney, predicts there will be a 25-30% increase in volumes in the next few weeks. "With the foreshadow of further rate rises, we should get interest for caps and fixings," he said.

Bear Stearns recently structured a capital guaranteed note in Japan, which at some USD500 million has gotten equity professionals talking about the economy picking up. "This is another indication that the business is coming back," said Kin Sang Cheung, head of equity derivatives trading at Bear Stearns in Tokyo.

Several traders said credit-default protection on the U.S. supermarket chain Safeway may be as much as 100 basis points underpriced, after default spreads on the supermarket giant failed to budge after negative news on the name last Monday.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.