Global CDO Issuance at Record Levels

This post is mainly for those who like data. The Financial Times, citing the Bank of International Settlements, reports that worldwide sales of collateralized debt obligations were $251 billion in the first quarter of 2007, and synthetic CDO sales were $121 billion, both record levels.

To give a sense of magnitude, total US rated subprime debt issues outstanding are $565 billion, according to a recent Bloomberg story.

The BIS information confirms that appetite for risk has been running high. Emerging markets lending hit a new high in 2006.

From the Financial Times:

Sales of collateralised debt obligations reached a record $251bn globally in the first quarter of this year, the Bank for International Settlements said on Monday.

Sales of synthetic CDOs – bonds backed by credit derivatives rather than actual bonds and loans – amounted to more than $121bn, up from $92bn in the previous quarter and a new record.

The booming issuance of CDOs highlights the growing significance and popularity of complex structured finance vehicles in global capital markets.

In its quarterly review of the financial markets, the BIS said: “Issuance of these instruments has, since mid-2006, coincided with a decoupling of [credit default swap] premia and spreads on comparable corporate bonds in both the US dollar and euro markets.”….

Meanwhile, credit flows to emerging markets continued to scale new heights. In 2006, emerging markets received $341bn of new credit inflows, up 47 per cent on the year and exceeding the previous peak of $232bn in 2005. Credit inflows to these markets are growing at an annual rate of 24 per cent.

Emerging Europe overtook Asia as the region to which BIS’s reporting banks extended the greatest share of credit.

Less-developed European countries received more than 60 per cent of the new credit to emerging markets. Borrowers in Africa and the Middle East accounted for 24 per cent of the total, while Latin America attracted 12 per cent. Borrowing by emerging Asia as a whole remained flat.

The euro has emerged as the borrowing countries’ currency of choice. “In the stock of claims outstanding, the euro and dollar shares were 44 per cent and 31 per cent, respectively,” the BIS said.

Sterling’s share of outstanding debt remained close to 1 per cent, while the yen continued to lose ground to the Swiss franc. Some 10 per cent of Croatian and Hungarian debt is Swiss franc-denominated. Borrowing in local currencies has risen to 18 per cent overall, and accounts for more than 35 per cent of outstanding Polish and Czech debt


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