Dealers are becoming increasingly interested in extending repo financing - a form of leveraged investment common in a number of asset classes - to would-be CDO investors, according to JPMorgan Securities.

As global outstanding CDO volume is set to breach the $1 trillion mark, the sector's growing liquidity and investor base offer a more sound investment for dealers than it used to. However, the terms of the arrangements - largely, how much money is invested upfront - depend on the dealer's balance sheet capacity and familiarity with the security, the security's liquidity and credit quality, as well as borrower credit quality and leverage.

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