Credit portfolio products proliferate

Large fixed-income investors want to take or shed sizeable diversified credit positions efficiently, without incurring lot cost or liquidity risk. Dealers are responding with a variety of new products. But which will succeed?

While the volumes of bespoke basket and collateralised debt obligation (CDO) transactions have ballooned in the last few years, dealers in Europe and the US have now begun to roll out new cash and derivatives investment products that provide exposure to generic credit portfolios. These are meant to offer efficient ways for fixed-income investors to diversify their portfolios – which is particularly important in the deteriorating credit cycle of the past 12 months.

CDOs and credit index-based