The dislocation in the CDO market right now has posed a number of challenges for CDO managers trying to balance higher returns with palatable risk characteristics. However, there is slow to almost nonexistent activity in ABS CDO new issuance, and collateral is trading well below its intrinsic value. As a result, CDO managers have recently been confined to surveillance.

Historically, CDO managers have been able to add value by trading out of collateral that is too rich and buying paper on the cheaper side. However, given the market's heightened sensitivity to risk, sources have noted that almost everything is being bid to a worst-case scenario. This makes it hard to add any value, as far as selling off collateral, when trades are below their underlying value, according to some CDO managers.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.