Since late 1999, CBOs referencing structured product have been an established part of the investment landscape, representing over a third of total CBO issuance. The major drivers behind this growth are the stable spreads, minimal event risk, nearly non-existent defaults, relatively stable credit migration and enhanced diversity of the underlying collateral. Multi-sector CBOs reference some combination of structured product (e.g., ABS, CMBS, MBS and CDOs themselves), with a small bucket often allocated to investment grade and high yield bonds and leveraged loans. In this report, we evaluate structured product collateral as a candidate for synthetic multi-sector CBOs.

What are synthetic multi-sector CBOs?

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