Tranche value on a yo-yo

Activity in leveraged super-senior trades is waning, with a shift in correlation pushing dealers to focus on the equity tranche. But packaging the first-loss tranche to attract a broad spectrum of investors is proving to be the biggest challenge. By Jayne Jung

The structured credit market has undergone a fundamental shift since May. Until then, dealers' business had been concentrated in the mezzanine part of the capital structure. However, the dislocation in the correlation market in May exposed the danger of a lopsided market, with a rise in idiosyncratic risk on the back of downgrades of General Motors and Ford laying bare the fragility of commonplace hedging strategies in a market driven by supply-and-demand factors.

During the third quarter, many