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News
January issuance smashes records as spreads tighten
by Lisa Lee
The CLO market blazed hot in January, breaking issuance records and pushing spreads down to near-historical lows. Market participants are positive about the rest of the quarter, but predict headwinds on the horizon.
According to Creditflux data, the US saw a total of USD 40.6bn of issuance over the month. That represents the best January on record, more than doubling last year’s USD 16.4bn and surging past 2021’s USD 24.5bn. Europe also shot out the gate, with EUR 5.9bn of monthly issuance easily surpassing the EUR 2.1bn recorded in January 2024.
Investor appetites for CLO paper have increased across the board, supporting the uptick in deal activity. Notably, CLO ETFs have attracted huge sums this year, with Janus Henderson’s AAA CLO ETF alone drawing in USD 3bn of inflows in January.
Investors are trying to achieve a better cost of capital on outstanding CLOs
Wynne Comer
COO
AGL Credit Management
“This year will be even better than 2024. CLO performance has been great, and I expect defaults will stay overall contained,” said Deborah Shire, deputy head of AXA IM Alts. “We are very excited about our investments and are increasing our exposure as we have been for the last 10 years. We love CLO equity right now, and triple As are also attractive.”
Taking into account the switch in the benchmark rate from Libor to SOFR, the surge in demand has driven down liability spreads to some of the lowest since the global financial crisis, when CLOs were refashioned into their current form.
Triple As, in particular, are flirting with a new record low, which is driving a wave of resets and refinancings. About 25% of US issuance is from new deals, according to Creditflux data.
“With the CLO liability market at post-GFC tights, the vast majority of transactions in the CLO market this year are resets/refis, in which managers and equity investors are trying to achieve a better cost of capital on their outstanding CLOs,” said Wynne Comer, COO at AGL Credit Management.
But the picture isn’t all rosy. While markets have responded positively overall to the Trump administration, his policies have introduced uncertainty. For instance, the start of tariff wars has rattled market participants.
“While I’m not predicting that spreads will widen out, [in this scenario] the pendulum tends to swing a bit more to the downside than to the upside,” said Michael Kurinets, CIO at Capra Ibex Advisors.
“In particular, the US BSL CLO market may have gotten ahead of itself... When spreads are close to historical tights, it doesn’t take much for a correction to take place.”
