Let the CLO defaults begin
Three issuers across CLO portfolios were classified as defaulted in 2022 so far, according to Deutsche Bank. That compares to a total of six for the entire year in 2021, and 39 in 2020, the bank’s data show.
Amid Monday's rout, junk bonds (HYG) finally took out the psychological level of 80, a level last hit during the depths of the covid crash (just before the Fed stepped in and started buying bonds).
The defaults also come at a time when leveraged credit is reeling from a plunge in prices, wider spreads and massive outflows from high-yield funds. Primary markets in Europe continue to be shut, with no junk-rated deal in public syndication for about a month now.
While the broader CLO market has also seen some signs of life - Napier Park Global Capital pricing a deal last week - but coupons for the top-rated and largest part came in at the highest since November and the transaction offered some sweeteners such as shorter non-call and reinvestment periods, according to Darie, a structure used at the start of the pandemic to lure investors and allow managers to refinance quickly when markets recovered.
Meanwhile, if the market volatility persists and credit continues to take it on the chin, expect many more CLO defaults, which incidentally may be just what bulls need. After all, while the Fed may ignore the crash in stocks, it will have no choice but to intervene once credit, which underpins Biden's entire fake, stimulus-driven economy, dives next.
Amid Monday's rout, junk bonds (HYG) finally took out the psychological level of 80, a level last hit during the depths of the covid crash (just before the Fed stepped in and started buying bonds).
The defaults also come at a time when leveraged credit is reeling from a plunge in prices, wider spreads and massive outflows from high-yield funds. Primary markets in Europe continue to be shut, with no junk-rated deal in public syndication for about a month now.
While the broader CLO market has also seen some signs of life - Napier Park Global Capital pricing a deal last week - but coupons for the top-rated and largest part came in at the highest since November and the transaction offered some sweeteners such as shorter non-call and reinvestment periods, according to Darie, a structure used at the start of the pandemic to lure investors and allow managers to refinance quickly when markets recovered.
Meanwhile, if the market volatility persists and credit continues to take it on the chin, expect many more CLO defaults, which incidentally may be just what bulls need. After all, while the Fed may ignore the crash in stocks, it will have no choice but to intervene once credit, which underpins Biden's entire fake, stimulus-driven economy, dives next.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
Read more
Comment
Sign in to post a comment
