Synthetic CDOs: Managers bet on long/short CDOs to deliver

A new generation of CDOs assumes spreads will probably widen.

The number of long/short CDO structures, or strategies that generate alpha in a deteriorating credit environment, is on the rise. There are very few managed CDOs currently in the market that do not try to include some sort of short strategy. Incorporating efficient long/short techniques into CDOs has become one of the most challenging goals because extracting every last basis point of extra yield is no longer generally perceived to be the best strategy in credit.

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