Tranches on the LCDX index debuted in mid-October, receiving a warm reception despite the cautious atmosphere in both the cash and synthetic leveraged loan markets. Dealers shrugged off comparisons to the doomed tranches on the ABX index (TABX) and are quietly confident that LCDX tranches will prove to have merit. However, given the still-fragile state of the credit markets, they are not expecting the new product to take off overnight.
“The market will find a home for this product, whether it’s as big as it is for tranched bond risk or as immaterial as the TABX or somewhere in the middle,” says Chip Stevens, head of high-yield cash and derivatives trading at Deutsche Bank in New York.
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