No serious risk to synthetic CDOs from mortgage crisis

The agency stress-tested all rated synthetic CDOs by simulating a three-level downgrade of all US subprime reference entities. Such a downgrade would affect approximately 27% of tranches of exposed CDOs, with an average downgrade of 2.4 levels, the study found.

Fitch found that 72 CDOs - 9% of all rated CDOs - were exposed to subprime residential mortgage-backed securities. However, most of the riskiest exposure was in US CDOs - 72% of US exposure was rated BBB or lower, compared with only 6% of European exposure.

The agency warned, however, that the full impact would not be clear until better mortgage performance information becomes available, in the second half of this year.

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