Moody’s sees record Japanese yen CDO issuance

International rating agency Moody’s Investors Service said today it rated a record ¥3.02 trillion ($25 billion) of collateralised debt obligations (CDOs) in the first quarter of the year. That compares to full-year volume of ¥3.14 trillion in 2002.

“The ability of the market to absorb such a huge volume in a single quarter shows that the range of CDO investors is much wider than previously thought,” Moody’s said in the report.

The agency said synthetic CDOs accounted for ¥2.32 trillion, or 77%, of the first quarter’s issuance volume, primarily due to two large synthetic balance sheet collateralised loan obligations (CLOs), worth ¥1 trillion each, issued by Sumitomo Mitsui Banking Corporation and UFJ Bank ahead of the end of the fiscal year-end on March 31.

Up to March 31, Moody’s said 19 out of the total 24 CDO deals in Japan were balance sheet CLOs, accounting for a total volume of about ¥5.23 trillion, or 99% of total volumes. “The surge in balance-sheet CLO issuance was driven by Japanese megabanks - including Mizuho Corporate Bank, Sumitomo Mitsui Banking Corporation and UFJ Bank - for the purposes of meeting BIS regulations,” Moody’s said.