As the execution of traditional, fully tranched synthetic CDOs continues to be challenging, investment banks are reporting increased appetite for single-tranche CDOs (STCDO), which allow investors to choose custom risk/reward profiles.

However, Fitch Ratings recently delivered a cautionary note about STCDOs, warning these "may be a potential detriment to investors new to the synthetic CDO market." Others, particularly on the sell-side, contend STCDOs are a valuable combatant to the low spread/high volatility environment for investors, new or experienced.

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