Merrill Lynch dominated CDO underwriting in the third quarter when it managed more than $14.7 billion worth of deals and increased its market share to 18.2%. In the first three quarters of this year, the investment bank has brought a total of $34.6 billion worth of deals to the market - almost doubling the $18.3 billion it did in the first three quarters of last year, according to data maintained by Thomson Financial. Total CDO issuance as of the third quarter was nearly $227 billion, completely eclipsing the $103.6 billion in CDOs issued to the market by the third quarter in 2005.

The torrid pace of issuance is a testament to high investor demand for the securities, as well as continued innovation within CDO structuring, market participants have said. Yet others point out that CDOs have merely been feasting off the U.S. housing market - and supply is indeed slowing down. "The unbridled pace of issuance activity in the CDO market appears to be yet another case of technicals that are not yet in line with fundamentals," Deutsche Bank analysts wrote last week. "We continue to maintain that this cannot last indefinitely." Excluding CDOs, the ABS market has contracted by 4.9% this year.

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