Emerging market CDOs
CDOs of emerging market debt have been limited by the lack of credit default swaps referencing EM assets. But that has not stopped a number of new issuers from entering the market recently
Emerging market debt has not historically been regarded as the most suitable asset class for CDOs for a number of reasons. Firstly, emerging market debt is an asset class in which correlation between reference entities is very strong, diluting the benefits of an apparently well-diversified portfolio. That correlation was clearly observed in crises such as those that befell Mexico, Russia and Argentina.
A second factor that has frustrated the development of emerging market CDOs has been the
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