The high concentration of residential mortgage asset-backed securities in collateralized debt obligations has market participants concerned CDO performance has become too closely tied with the U.S. housing market. Late last year, some ABS CDO deals had 5-15% in commercial and consumer ABS, but more recent deals are 90% to 100% residential, Michiko Whetten, a quantitative credit analyst with Nomura Securities in New York, told DW. While CDO credit performance has been generally improving since 2002, ABS CDOs are seeing increased downgrades.
The ABS deals being downgraded are almost all from 2000 and 2001 and result from high exposures to the manufactured housing and aircraft ABS sectors. "This concentration issue and the prospect of rising rates are driving the renewed fear," she said. In a recent structured finance report, Fitch Ratings noted the upgrade to downgrade ratio improved from 2003 in all sectors except U.S. residential mortgage-backed securities.
