The return of credit products

Synthetic CDO’s are back say these pieces (here and here). Some of you may recall the BISTRO template, where the cash flows from selling CDS are packaged into tranches and sold to investors. This time, it appears that these are more of the “bespoke” variety, where the products are customized for presumably savvy investors and do not go through a ratings process where senior tranches used to get AAA ratings in years past. Regardless, Citi apparently sold $2 billion last year and has already done $1 billion this year alone.

Somewhat more ominous is this plan by ProShares to create and market ETF’s that are based on CDS. The thinking behind this is that in a post Dodd-Frank world, CDS trading is moving to exchanges, is becoming more transparent, so retail investors can participate in these products.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s