CPDOs: A volatility game

A triple-A rated structure that pays Libor plus 200bp. Who wouldn't be interested in such a product? Perhaps the sceptics warning against the 15 times leverage and the instrument's high exposure to volatility. Laurence Neville reports


Constant proportion debt obligations have been the talk of the credit market since September's inaugural deal. Now over 16 issues worth almost EUR2 billion have been launched. But this runaway growth comes with caveats: the UK's Financial Services Authority has warned banks against misrepresenting the risks of the products and there are questions about whether the premise of CPDOs - a high rating with outperformance - holds up to scrutiny.

The attractions of CPDOs are obvious: a Libor plus 200bp

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