Are EM Bonds Fit For CDOs?

Jun 1, 2002

With better than expected default rates and improving ratings, emerging market bonds - including those from Latin America - deserve a serious look from the collateralized debt obligation marketplace.

One of the fastest-growing segments in the fixed income market has been collateralized debt obligations (CDOs), the innovative $250 billion universe of repackaged instruments. The concept is simple: take a pool of debt with a blended credit rating and cut the pool into different asset classes with varying risk/return profiles based on seniority in the capital structure. CDOs grew out of the collateralized mortgage obligation (CMO) marketplace when it became clear that there might be a funding cost reduction when securities were pooled and resold in different tranches. CDOs now include high yield and investment-grade bonds, leveraged bank loans, emerging market bonds and asset-backed securities. Under a typical CDO, bonds with a common maturity are placed in a trust and various capital tranches of the trust are rated. Such pools require significant diversity requirements in terms of industry and domicile, and have limits on issuer and issuer-type concentrations. The...

To continue reading please take a free trial, subscribe or login below.


Already have an account?

Subscribe

Subscribe now for unlimited access to all current and archive news, data and market analysis. 

Subscribe

Free trial

Take a free two-week trial now for the latest news, data and market analysis.

Free Trial

Upcoming Events

Poll

Which area will be most profitable for investment banks in LatAm in 2016?

Vote    




Popular Searches