Sluggish SOFR lending keeps CLO basis contained
Slow credit markets keep risk in check for CLO equity holders
Equity holders in collateralised loan obligations (CLOs) may have sidestepped a consequence of the Libor transition that was expected to drag down returns this year.
The market-wide switch from Libor to alternative benchmarks meant CLO managers would have to pay bondholders at higher rates versus those received on loans, with CLO equity holders the losers.
Most CLOs’ bonds and loans currently reference Libor. But a typical CLO is hardwired to reprice its liabilities over the secured overnight
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