Credit looks to forward curves
New angles
Structured credit dealers are increasingly borrowing trade ideas from the exotic interest rate market to create value for investors in the tight credit spread environment. In particular, a new collateralised debt obligation (CDO) product has emerged that aims to take advantage of steep forward curves in the credit default swap (CDS) market.
The CDO is referenced to a portfolio of forward-starting CDSs, giving investors an opportunity to benefit from the upward-sloping nature of the credit curve
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