Merrill Lynch are today due to launch a new credit product with an acronym that will only serve to further confuse the uninitiated. Together with Credit Agricole they are launching CFXOs or Collateralised Foreign Exchange Obligations. Based upon the structure of CDOs (Collateralised Debt Obligations) - essentially pooled vehicles that allow  investors in to buy into different risk tranches of debt - CFXOs will therefore allow the investor to buy into a tranche of FX rates to gain their desired currency exposure, but with the added advantage of a rating, a yield and a maturity. Clearly this will offer a more pointed solution to currency risk management - as well as possible alpha opportunities as the contracts are unlikely to be closely correlated to traditional assets. I imagine the investment banks will be the biggest users of them as they search for arbitrage opportunities with vanilla FX options - but I can certainly see a time when investment managers catch on and use them for currency overlay and other risk management functions.

Also in the news in the Credit world is the announcement by CMA of significant enhancements to their credit pricing tool DataVision. CMA uses a consensus-based model for credit derivative price verification. The enhancement allows users to price all the points in the full term structrure of contracts that were previously hard to price due to illiquidity.