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Synthetic CDOs Making Comeback as Yields Juiced

Derivatives that pool credit-default swaps to make magnified bets on corporate debt, popularized in the last credit bubble, are making a comeback as investors search farther afield for alternatives to bonds at record-low yields.

Citigroup Inc. is among banks that have sold as much as $1 billion of synthetic collateralized debt obligations this year, following $2 billion in all of 2012, according to estimates from the New York-based lender. Trading in so-called tranches of indexes that use a similar strategy to juice yields rose 61 percent in the past month.