The rise and fall of the CDO-squared

CDOs-squared, or CDOs of CDOs, provide investors with enhanced yields but inevitably there is a price to pay in the form of increased risk stemming from the instrument's 'compound' structure

Within the CDO universe, perhaps the product that best exemplified the pioneering spirit of the market as it sought to deliver greater leverage and enhanced returns in 2003 and 2004 was the CDO of CDOs, or the CDO-squared. The CDO-squared template dates back to 1999, with the launch by the Zais Group of the $343.5m Zais Investment Grade Co Ltd (Zing 1).

Since the launch of that transaction, the popularity of the CDO-squared blueprint has also prompted the evolution of the so-called CDO-cubed, or