The quest for yield opportunity in investment-grade corporate paper has also led to a growing interest in CDOs that reference portfolios of equity default swaps. CDC IXIS Capital Markets is putting together an innovative European CDO that bridges the equity and credit worlds, said Stephane Handjian from the investment-grade CDO group at CDC.
"[The transaction is] based on 30 mini CDOs on second-to-default," he said. "Current levels on both markets provide the right timing for arbitrage opportunities. Each mini CDO is composed of a four-named mix of credit default swaps and equity default swaps. After synthetic investment-grade arbitrage CDOs, and CDO of CDOs, this transaction is a new step forward."