Testing times for CDOs

European CDOs look set to buck the downward trend in the high yield market and post a decent year-end performance. But will the diversity that has enabled CDOs to flourish inhibit growth when the market starts to recover? Mark Pelham investigates

Logic would dictate that lacklustre performance in the high yield bond markets this year should herald a similarly poor scenario in the European CDO market. However, thanks to the diversity inherent in European CDOs, market participants are not expecting to suffer a similarly harsh knock-on effect. That diversity, however, creates its own challenges both for CDO structurers and managers. In spite of these hurdles there is considerable optimism for the coming year from all sides of the market.

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