Are EM Bonds Fit For CDOs?

Are EM Bonds Fit For CDOs?

Corporate & Sovereign Strategy

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 securiti

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