The CDO secondary market is growing steadily. Reportedly both Lehman Brothers and Morgan Stanley's CDO secondary desks traded about $1.5 billion of CDO secondary paper each in 2001, of which roughly 50% consisted of triple-As, 25% double-As/single-As, with the remaining 25% made up of triple-Bs down to equity.
Two distressed arbitrage cashflow high-yield CDOs, with triple-C buckets in the high-teens to low 20s, were offered in the secondary market last week. The two triple-A blocks were said to be offered in the low to mid 90s-basis-points area over Libor, investors report. Both deals, which have a mix of high-yield bonds and loans, are on credit watch negative.