Taking on corporate exposure through the credit derivatives market has become one strategy a growing number of CDO investors are embracing. Yet while the credit derivatives market continues expanding, how liquidity performs for single names is a phenomenon CDO investors may not fully understand when exploring new CDO deals that harness credit derivative swaps.

Single-tranche CDOs have gone mainstream this year, and a plethora are in the market right now. Currently, TCW Advisors' Oak Canyon Funding I, a $1.874 billion synthetic CDO lead managed by RBC Dain Raucher is in the market. The deal is packed with investment grade single tranche names. CDC IXIS has shopped around a synthetic $750 million CDO, Blanche CDS 2004-1, which is packed with single tranche credit derivative swaps.

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