BB CLOs 7.4% vs US HY bonds 3.0%

CLOs have always offered an attractive premium to bond or loan spreads, but investors continue to overlook the asset class due to their complexity and as they tend to be less liquid during market stress periods.

However, a rational investor should take advantage of this relative yield advantage. Now, the yield spread looks particularly interesting vs. loans/bonds and the nominal yield for CLO BBs averages at 7.4%. 

Another interesting feature of CLOs is their floating-rate nature and hence, an investor would benefit should short term interest rates increase. Primary issuance for CLOs until mid-June 2021 has been strong with a total of USD 74 bn, representing 80% of total primary issuance in 2020.

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