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Whitepaper: The Case for CLOs
Key Takeaways
- CLOs offer portfolios of floating-rate bank loans securitized across the rating spectrum. The availability of floating-rate bonds is limited in the U.S., and the choices for high quality floating-rate securities is even more limited, yet around 80% of CLOs carry a credit rating from A to AAA.
- Relative to the investment-grade corporate credit market, CLOs have offered a consistent yield premium across the rating spectrum, in some cases as much as two times the yield offered over U.S. Treasuries.
- In an environment where interest rates are low and the risk of higher Treasury yields has risen, allocations to AAA rated CLOs may help investors diversify a traditional fixed income portfolio, offering lower volatility, higher credit-quality and less sensitivity to any rise in interest rates.
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