Kinabalu

Why Merrill's CDO Sale Doesn't Mean Big Writeoffs Elsewhere

The "super senior" securities sold in the marketplace have no standard definition. The arrangers can structure the security any way they want. The only generalization you can make is that the "credit risk" of the security will be low. however because the credit risk is low the interest yield is also low. Arrangers get around this, and enhance the yield, by often building a lot of leverage, usually with low rate short term funding, into the structure. So, while the credit risk is "super senior" the securities can have a lot of interest rate risk and/or funding risk.