Sobering News on CDOs in Moody's Report (Hedge Funds Shorting BBB)

By Christopher Faille, Reporter New York
HedgeWorld.com May 11, 2005


Janet Tavakoli, president of Tavakoli Structured Finance Inc., Chicago, said the Moody's data indicates that the Baa tranche may well be mispriced. Ba investors received a much higher coupon than did Baa investors for essentially the same risk during the sample period. This is striking because Baa "is often a large part—often the only part—of the mezzanine tranche of single-tranche synthetic CDOs," Ms. Tavakoli said.

It's accordingly unsurprising, she added, that savvy hedge funds are eager to short the Baa tranche.

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Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct professor of derivatives at the University of Chicago's Graduate School of Business. She is the author of: Credit Derivatives & Synthetic Structures (John Wiley & Sons, 1998, 2001), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, 2008).

Janet Tavakoli's book on the global financial meltdown is Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street (Wiley 2009).

Clients of Tavakoli Structured Finance have the benefit of proprietary consultation, which is not available in any other paid or public forum. Clients also commission proprietary research and analysis.

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