(Reuters) - Investors snapped up some $600 billion of synthetic CDOs last year, attracted by their much higher yields compared to corporate bonds with identical credit ratings. That added to a market estimated in the trillions of dollars.
The problem is the process used to price tranche risk is uncertain. That is dangerous for banks that use the instruments to hedge regulatory capital requirements and for investors, who may struggle to gauge what will happen to their investments if companies in the portfolio default.
Read more at Reuters.com Bonds News
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