Sailing towards better returns

Tight corporate credit spreads are forcing dealers to come up with new ways to offer retail investors the chance of a decent return. Structures linked to credit derivatives indexes using constant proportion portfolio insurance to gain leverage are hitting the market. But dealers are split over what should be the optimum structure. By John Ferry

With corporate spreads now at such tight levels, the task of finding payoffs that will interest investors is particularly difficult for makers of structured credit products. But it is the structured product designer’s job to innovate and create marketable products, regardless of prevailing economic conditions.

In the credit derivatives arena, that currently means encouraging investors to either