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Illustration: Sarah Grillo/Axios

Left for dead in the aftermath of the global financial crisis, collateralized debt obligations (CDOs), one of the most notorious agents in the collapse of the financial system, are starting to gain favor again on Wall Street.

The big picture: Synthetic CDOs, seen as particularly risky, both for a bank's balance sheet and its reputation, also have seen a wave of fresh investment this year as investors look for ways to bet on corporate defaults and generate yield.

Details: Christopher Whittall of International Financing Review reports, "Trading volumes in synthetic collateralized debt obligations linked to credit indexes are up 40% this year, according to JP Morgan, after topping US$200bn in 2018 on the back of three years of double-digit growth. Meanwhile, analysts predict more than US$100bn in sales of bespoke synthetic CDOs in 2019 following an estimated US$80bn of issuance last year."

What's happening: Since 2009, after the Fed began its quantitative easing program, investors have piled out of bonds and into riskier assets in an effort to replicate returns of the past. Portfolio managers have tried buying stock options, investing in hedge funds, private equity and alternatives. CDOs look to be the latest pick.

  • Whittal reports that Citigroup, which was already investing in CDOs, has hired more traders to focus on the synthetic market in recent months. Deutsche Bank and Barclays look to be increasing their presences as well.
  • "We provide solutions for our clients as there is a need in the market from investors for the yield and exposure from synthetics that is not available in other markets," a Citigroup representative who was not authorized to speak publicly on the matter tells Axios.

Yes, but: Today's synthetic CDOs are largely free from exposure to subprime mortgages, which drove much of the carnage in the crisis. Most are credit-default swaps on European and U.S. companies, and amount to bets on whether corporate defaults will increase in the near future.

  • The amount of CDOs being traded also is much smaller than it was during the crisis, and is even a few hundred million dollars below the total seen in 2011.

The bottom line: "We are still at such a low level that this is not a worry at this stage," Deutsche Bank chief economist Torsten Slok tells Axios, "but we are indeed monitoring it carefully given the role synthetic CDOs played during the crisis."

Go deeper: Debt is suddenly hot

Go deeper

COVID created an epic U.S. trade gap

Chart: Axios Visuals. Data: Census Bureau/Bureau of Economic Analysis

The details of the blockbuster fourth quarter GDP report released Thursday morning tell a vivid story of how the underpinnings of the world economy have been reshaped by the pandemic.

One example: In the arithmetic around U.S. economic output, trade acted as a more severe drag last year than it has in a generation.

Updated 49 mins ago - Technology

Pandemic gave cover to online dating scams

Illustration: Annelise Capossela/Axios

Crooked Casanovas used online dating scams to steal an estimated $500 million from lonely victims last year, according to a new analysis of government fraud data by Atlas VPN, an internet security provider.

Why it matters: The isolation of the lingering pandemic provided cover to fraudulent suitors who had an excuse for not meeting up in person even as they fleeced their would-be lovers out of gift cards, money — even cryptocurrency.

Updated 56 mins ago - Politics & Policy

Omicron dashboard

Illustration: Shoshana Gordon/Axios

  1. Health: Omicron is finally burning out — It's very difficult to get access to antiviral COVID treatments — Axios-Ipsos poll: Omicron's big numbersAnother wave of death — FDA limits use of Regeneron and Lilly antibody treatments.
  2. Vaccines: Pfizer begins clinical trial for Omicron-specific vaccine — The shifting definition of fully vaccinated.
  3. Politics: Navy discharges 45 sailors for refusing vaccine — Spotify to remove Neil Young's music after his Joe Rogan ultimatum — New York Supreme Court grants stay for indoor mask mandate.
  4. World: U.K. to lift travel testing requirement for fully vaccinated — Beijing Olympic Committee lowers testing threshold ahead of Games.
  5. Variant tracker