When Bank of America came up with the concept behind the Core Investment Grade Bond Trust several months ago, it probably seemed an excellent idea. The environment was after all one where many investors were hellbent on decreasing exposure to the largest and most volatile individual corporate names. So what could be better than an aggregate product that offered them lower transaction costs, a diverse pool of bonds with an average A3/A- rating and the promise of secondary market price-making support from the arranging banks?
Unlike similar aggregate bonds such as Morgan Stanley's Tracers and Lehman Brother's Trains, Core also offered issuers the chance to raise new money through a potentially large and liquid transaction. This was attractive, since many frequent issuers were seeing spreads widen and were loath to offer stand-alone bonds into a volatile market.
Unfortunately, by the time Core was launched last month it had failed to meet the expectations of either constituent. Bank of America and JPMorgan, which BofA brought in as joint bookrunner, had hoped to launch one jumbo $4 billion to $8 billion bond. But investor demand on that scale wasn't there and the A3/A- rated deal was launched at just $2.025