ML-Implode News - Bet on CDOs Returns to Wall Street

Efforts to pull off the deals show that banks and investors battered by CDOs during the financial crisis are increasingly willing to ignore bad memories in order to reach for higher returns. In markets ranging from commercial mortgage-backed securities to junk bonds, investors are eager to buy even the very riskiest investments, some of which now deliver yields of more 20% per year.
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The synthetic CDOs being built by J.P. Morgan and Morgan Stanley differ from their predecessors in some ways. For example, one middle slice has been harder to sell than other pieces because it doesn't yield enough, some investors complain. Since the crisis, credit-rating firms have made it tougher for deals to get top-notch letter grades.

In another difference, buyers of the least-risky slices would get more protection against potential losses than buyers of similar slices did before and during the crisis, said people familiar with the discussions.

Hedge funds are considered the likeliest buyers for riskier parts of the deals, which are the first slices to absorb losses.

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Bet on CDOs Returns to Wall Street