Latest News:
news, comment, analysis and data on the global business of credit trading and investing
Structured
Barcap touts full cap structure trade to arb super senior basis
Wednesday, March 10, 2010
Barclays Capital says that the current 7.4 basis point difference between actual and model-implied super senior spreads is a good point to put on a full capital structure trade. This involves selling protection on all the standard index tranches and buying protection on the index at the same time. At current levels, this would result in an upfront payment of 1.89 points by the investor who receives an annual running coupon of 76bp.
Related stories
- Lingerie maker sues after losing its shirt on a CDO 1 day ago
- Garrison CLO will refinance existing deals, says Bloomberg 1 day ago
- Euro turmoil drives tranche tradiing 2 months ago
- New leveraged trades drive super senior tranches tighter 3 years ago
- Bank of America completes novel super senior trades 4 years ago
Are investors still using the "model-implied" framework ..? If the concept of "Correlation trading" (credit) .. persist, that would be rather dangerous .. because at the end of the day the underlying of this derivative instrument is the cumulative defaults (though this is driven by correlation).. we should focus implied "Cumulative Defaults" and therefore the implied spread (premium) for assuming this risk.
We got our points up front the wrong way round in the original version of this article. The 1.89 points is, of course, paid by and not to the investor, as now shown in the article. Apologies for the confusion.