While investors scour the couch cushions for yield, the stronger rally seen in the corporate unsecured market does create opportunities. In its third installment of tracking ABS versus unsecured debt spreads, Citigroup Global Markets assesses the relative value ABS offers versus corporate debt, particularly for issuers heavily reliant on securitization.
When Citigroup first noticed this arbitrage opportunity (see ASR 2/4/02), spreads for subordinated credit card ABS and unsecured debt had just started to diverge. Since then the divergence has increased significantly and then reversed course. Using Citi's "Mind the Gap" strategy, an investor buys subordinated credit card ABS and hedges simultaneously buying credit default swap protection against the corporate credit.