Market-value CDOs have been creeping their way back into vogue over the past year and a half, and the rebound experienced in 2004 could signal an emerging trend if market conditions remain stable, according to Standard & Poor's. S&P attributes the recent increase to the overall stability of the bank-loan market, as market value CDOs tend to be comprised significantly of bank loans for liquidity purposes.

Market value CDOs look a little different than they did before 2003. In the past eighteen months they have contained more bank loans as portfolio assets than ever before, as much as 40% to 80% in the post 2003 era, up from 20% to 60% in the pre-2003 period. Credit default swaps and shorts, non-existent in pre-2003 market value CDOs, now make up 5% to 15% of the securities. Private equity has virtually disappeared from portfolios, and S&P attributes that trend to the fact that collateral mangers of post-2003 market value CDOs are more focused toward liquidity, and private equity tends to be less liquid than other collateral.

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