Fanciful funding

As issuer credit spreads soar, investors have been left baulking at their consequent mark-to-market losses, as well as sometimes dramatically wider bid-offer spreads. That said, the mark-to-market for structured products has generally been higher than for straight bonds. But how have credit spreads and issuer funding levels affected the value of these structured product trades? Matt Cameron reports

"If I were a structured product investor and held a five-year, capital guaranteed product, which for the first few years traded on the secondary market with a bid-offer spread of 100 basis points (bp), and then soared to 1,000bp by the end of 2008, I would be livid," says one New York-based structurer. "These exceptional spreads have caused some investors to turn their backs on structured products altogether."

Structured products dealers' credit default swap (CDS) spreads had an extremely