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Systemic Risk

Markets Insight: ‘Frankenstein’ CDOs twitch back to life

“Has Frankenstein returned? That is a question some investors might ask when they look at the world of collateralised debt obligations.

After all, a mere three years ago it seemed as if the really monstrous forms of CDOs that proliferated during the credit bubble had been killed off. Most notably, issuance of so-called synthetic CDOs – or bundles of derivatives based on corporate, mortgage and sovereign debt – collapsed from a peak of $648bn in 2007 to $98bn in 2009.