Japanese arbitrage CDO issuance to remain at standstill

There were nine synthetic CDOs issued in Japan in the first nine months of the year, all of which were balance sheet transactions. “Japan’s credit risk market is experiencing a tightening in credit spreads, due to the protracted low interest rate environment and excess liquidity," says the report. "Consequently, little issuance of arbitrage CDO transactions – referencing Japanese names – has occurred," it adds.

Moody’s has rated a total of 20 cash and synthetic CDO transactions in the first nine months of the year. These deals were worth ¥4.08 trillion ($34.8 billion), compared with 21 deals worth ¥2.4 trillion ($20 billion) over the same period last year. Moody’s noted that the difference in volume was due mostly to major banks offering balance sheet CDOs in the second quarter.

In the third quarter of the year, Moody’s rated eight CDOs worth ¥880.9 billion ($7.74 billion), including four primary collateralised loan obligations (CLOs). According to the rating agency, primary CLOs, along with re-securitisation, are the asset classes that will continue to grow most significantly in Japan.

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