Are CLOs, CDOs returning Back !! Déjà vu 2004

Recall the financial crisis in 2008 and the first thing that will knock  the head will be structured finance deals. In the last downloadposts we have tried to put on the explanations to these structured product.

The financial media reported “At the end of last year we started to see a surge in CLO [collateralized loan obligation] issuance, and now we are going to start to see a surge in CDO issuance. These are the same instruments that were used in the last credit boom, which turned out to be one of the greatest credit booms in history, from 2003 to 2007.”

The demand for corporate bonds is outstripping supply is one of the major reason there will be shift to structured finance. Taking from different point of view as a nascent credit boom, coupled with low-interest rates, spurs banks and investment firms to test the market for high-yielding, riskier assets.

To recall CDOs, which are collateralized against an asset pool comprising of a variety of bonds and other fixed income securities, were blamed for the 2008 financial the crisis. Investors purchase a “tranche” of the CDO comprising different types of debt with varying degrees of credit risk. The riskier the tranche, the more it pays.

Structured finance deals of a type last seen before the financial crisis are set to come back in 2013,that Germany‘s Deutsche Bank had recently launched a CDO worth $8.7 billion.

While few reports of CDOs from other banks have emerged, several CLOs – which are similar in structure to CDOs, but securitized purely against loans – were launched in January by the likes of Bank of America, Goldman Sachs and Citi. The CLOs ranged in size from $515 million to $1.3 billion.

We may see the structured finance in fashion soon if it goes the same way.

3 thoughts on “Are CLOs, CDOs returning Back !! Déjà vu 2004

  1. This will be bad if this CDOs are not valued properly and regulated, as we have seen in 2008 crisis in the book “Too Big to fail” the CDOs and CDS then where not regulated and where not valued properly they just issued without knowing the consequences, even John pulson who made his biggest fortune by betting against this fancy products mentioned regarding valuation problem in the book “the greatest trade ever”.

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  2. This will be bad again if this time CDOs and CDS will not be valued properly or regulated..the sole reason for 2008 crisis was this fancy products were not regulated and were not valued properly as mentioned in the book “Too big to fail”, even john pulson the hedge-fund manager made his fortune in this products mentioned about the valuation problem.

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