While the market might feel that moving toward a seven handle is a big shift to clear triple-As, according to one dealer, the real clearing level for synthetic IG CBO paper is in the 90 to 100 basis point range over Libor. "You can only stuff the primary market with triple-A synthetic CDO paper at 60 basis points over and then sell it to the next person a few weeks later in the secondary market at 90 basis points over for so long until someone gets upset," noted one buyer in the primary and secondary market.

"Selling triple-B CDO paper is like trying to get water from a stone, even CLOs," added one banker who is still making money in the sector. Many were not surprised to see that Lehman Brothers ripped out the triple-B rated tranche of the PIMCO IG CBO, Santa Rosa, and added an A2' rated tranche that priced at 250 basis points over Libor, the same level as recent triple-B prints.

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