CDOs: Equity volatility

Who will bail out the credit derivatives market after last week’s heavy losses? Hedge funds and investment banks are hoping that distressed credit investors will rescue them from their underwater positions. So far, however, there have been few takers. The positions that hedge funds want to sell are the so-called «equity tranches» of collateralised debt obligations – pooled investment vehicles that assume exposure to lots of company debts via the derivatives market then slice it into tranches of...