9. Consider the following news from Reuters: HVB Suggests Covered Bond Switches 0843 GMT [Dow Jones] LONDON—Sell DG Hyp 4.25% 2008s at 6.5 bp under swaps and buy Landesbank Baden-Wuerttemberg(LBBW) 3.5% 2009s at swaps-4.2 bp, HVB says. The LBBW deal is grandfathered and will continue to enjoy state guarantees; HVB expects spreads to tighten further in the near future.

(a) What is a German Landesbank? What are their ratings?

(b) What is the logic behind this credit strategy?

(c) Can you take the same position using CDSs? Describe how.