Since its birth in the 1980s in the United States under the leadership of the market for junk bonds, obligations rated in the speculative category, the CDO market is constantly adjusted to crises. These first "CBO" principle was to play on the assets of portfolio performance gaps and the compensation cost of tranches rated in category investment investors (well graded so inexpensive) through mechanisms of enhancement of credit and the diversification of risk obtained by the constitution of a portfolio of assets. This mechanism of enhancement, which offers little risky hedge assets, slices and allowed institutional investors take indirect exposures on the high yield market.
Bond market, this mechanism of securitization is extended to the banking market by leveraged Bank loans. The collapse of the market for junk bonds, following the bankruptcy of the Bank Drexel Burnham Lambert, interrupted these developments in the early 1990. But they resumed in 1998 under the leadership of the development of credit derivatives, giving rise to the synthetic CDO. Many legal and fiscal obstacles prevailed for the first securitisations CDO by perfect assignment.
Risk management mechanisms are further improved in the second market crisis, following the terrorist attacks of 11 September 2001 and the bankruptcy of Enron followed by restructuring (WorldCom, Marconi, ATT, Teleglobe). CDOS have been hit hard by rising default rates on the speculative market. Investors, such as American Express, withdrew from the market. The reinsurer SCOR or Dexia, also suffered high losses. Presentation on nearly 700 signatures, is almost the entirety of the CDS, the first market risk has recorded 65 and 72 million euro loss in 2002 and 2003 on the activities of credit derivatives. The share of BOF high yield fell, 24 of CDOS rated by Moody's in the United States in 2000 to 2 in 2003.
The concentration of derivatives on a limited number of signatures explained the 2002 episode, "annus horribilis" of CDOS, in which one-quarter of European fixtures saw his degraded note. Also, the fact that designed in the late 1990s and early 2000 CDOS, "also often included design flaws, particularly in terms of diversification", indicates the France Bank in his study.
This crisis and highlighted the lack of transparency in terms of "pricing" of CDOS and excessive arbitration between the constraints of the rating agencies and the lack of management of portfolios.
This thus led the creation of CDO actively managed, where the Manager has the possibility of replacing the underlying portfolio securities. Banks then developed new techniques of risk, the "delta hedging": in these cases, the arranger sells not all of the referenced amount, but only as a fraction (the delta) that is dynamically adjusted based on the "spreads" of credit. They thus neutralize variations in price of slices on the evolution of the "spreads" of the underlying portfolio.
The banks were able to offer new products more secure. And this without penalising performance, while the market had since 2002, a decrease in credit spreads. The CDO to single wafer, weighing 90 synthetic CDO, appeared in 2003. They économisaient the cost of placement of all the slices, and investor awareness of the risks of these structures had the insurance benefit from tailor-made products, in which they could select underlying signatures, select the subordination of the slice and its size. The banks then launched CDO-backed index.
Using these techniques to cover more complex montages have also been structured to gain in efficiency, as with "collateralized debt obligations" of securitization, the CDO of ABS or CDO of CDO products. However, these include "risks in terms of correlation", judge the France Bank in his study.