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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.
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CFlux secondary
CLO index levels:
| Index | 6 Feb |
|
| CFlux USD AAA | ↑ | 94.9 |
| CFlux USD AA | ↓ | 81.3 |
| CFlux USD A | ↓ | 75.0 |
| CFlux USD BBB | ↑ | 74.8 |
| CFlux USD BB | ↑ |
72.1 |
| CFlux USD EQ | ↑ | 67.6 |
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.