High yield CBOs - which comprise less than one-quarter of the broader CDO universe - accounted for close to three-quarters of materially impaired securities in the U.S. CDO sector between 1993 and 2003, according to a report from Moody's Investors Service.

Moody's analysts maintain that the poor corporate credit environment is not necessarily to blame, and point to the adverse selection of collateral assets and the sidestepping of structural features by some collateral managers, interest rate risk over-hedging and insufficient structural protection against credit risks as some of the root causes behind underperformance in the HY CBO arena.

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