Mezzanine note holders, in particular, need to keep their shields raised in preparation for rising interest rates, especially those with positions in cash collateralized debt obligations. While standard hedging practices crafted by managers and dealers may project out smoothly on paper, market uncertainties have thrown a few "hot pokers" into the mix.

Following a dour 2002, concerns over Bush's economic plan and war with Iraq have hampered the CDO market this year. According to sources, once first quarter figures are tallied, 1Q03 will have been anything but the jumpstart CDO participants hoped for. Researchers at JPMorgan Securities recently reported that CDO returns this year have fallen from the 30% to 40% range to a dreary 20%-25%. By some accounts, year-to-date, CDO issuance this year is 39% off the pace of 2002.

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