Balancing the capital structure
Turmoil in the correlation market in May has highlighted the dangers of over-concentration in a single part of the capital structure, with dealers racking up millions of dollars in mark-to-market losses on short mezzanine positions. This in turn has encouraged banks to widen their product offering to generate greater two-way flows. By Hann Ho
The turbulence in the structured credit market in May has prompted some dealers to rethink how they run their correlation desks. The millions of dollars in mark-to-market losses posted by banks and hedge funds in the wake of the Ford and General Motors (GM) downgrades have hammered home the importance of balancing risk concentrations. Dealers are now looking to push new products along the entire capital structure – in particular, leveraged super-senior notes – while some banks have reorganised
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