The second quarter of 2004 saw a 30% spike in U.S. CDO volume and a smaller number of downgrades compared to years past, noted Moody's Investors Service. The rating agency issued 43 downgrades in the quarter, a sizeable improvement compared with the 80-downgrade-per-quarter average in 2003.

"CDOs were again bolstered by strong demand, with activity less tilted toward CDO resecuritizations than the previous few quarters," said Moody's Managing Director Jeremy Gluck. High yield CLOs and synthetic arbitrage deals were "plentiful," he added, and TruPS CDOs accounted for most of the residual.

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