In the wake of the Sept. 11 calamity and its impact on affected industries, issuance of tranched portfolio default swaps referencing investment-grade (IG) credits has increased markedly, writes Lang Gibson, head of structured credit products strategy at Banc of America.

Recognizing uncertainty and liquidity premiums, investors are increasingly taking advantage of wider IG spreads. Technical factors such as convertible stripping have driven the basis between credit default swaps and asset swaps to wider levels. In a spread contagion, portfolios can be created with cheap levels and without concentrations in problem industries with high default probabilities such as telecoms and airlines, says Gibson.

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