The European CDO market has been booming this year so far, particularly among those CDOs focused mainly on high yield bonds. Issuance year-to-date totals $2.3 billion - nearly the same amount as total issuance for the whole of 2000.

But all the activity in this normally quiet market could be short-lived. While European CDO issuance has been healthy over the past six months, the performance of European high yield bonds has not, making things difficult for those structuring CDOs. In fact, experts predict a move out of European high yield as CDO collateral, and into other asset classes as the year goes on.

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