CDO notes have generally been a better investment than corporate bond swaps over the past three years, Wachovia Securities analysts said in a research report issued last week. For the study, analysts used a performance analysis based on new-issue spreads over the time period. While mezzanine CDO investors have enjoyed quite a bit of yield amid the recently stable credit environment, analysts are recommending an up-in-credit and asset diversification strategy going forward.
"I think we are finding pretty decent value across the board," said Steven Todd, an analyst at Wachovia. "Even for corporates, we have found that these have had better performance, but for relative value across sectors, I think we'd be most comfortable advising investors to look at CLOs as opposed to ABS CDOs." Interestingly, the analysts also found less correlation than they expected between the ABS CDO and CLO sectors, as well as between corporate bonds, equity and CDOs.