The collateralised debt obligation (CDO) market witnessed a turnaround in new issuance in April, according to research from Goldman Sachs in New York. But the year-to-date new issue of CDOs in the US and European markets is still down by more 20% and 50%, respectively, compared with last year.For the first time this year, monthly issuance exceeded last year’s level. A total of 11 cashflow CDOs were priced last month compared with just seven in April 2002.
Goldman's fixed-income strategies team, headed by Alex Reyfman in New York, attributes the pick-up in volume to improved positive sentiment in the credit markets and the pricing of some transactions that have been on the forward calendar for several months.
According to the report, the range in collateral types underscored the strength of issuance in April, with transactions priced beyond those backed by leveraged loans, structured product and trust-preferred securities. The first high-yield bond CDO was priced this year, as was the first CDO of CDOs of the year.
The synthetic CDO market also had an active month. Reyfman said one large euro-denominated managed synthetic CDO was priced late in April and was reported to be increased from its original €1.1 billion in bundled assets to more than €2 billion. In addition, the US market saw its second managed synthetic CDO this year.
Reyfman says the tight spread environment of the past year has decreased the issuance incentive. "The overall volumes coming to the market – in particular the upsizing of the European transaction – are somewhat of a surprise when one considers the recent strengthening of investment-grade corporate credit spreads from already tight levels," he said.
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