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Analysis CLOs
Records tumble in fantastic February
by Shant Fabricatorian
After a strong January, the second month of 2025 saw record issuance and spreads hitting all-time tights, while managers remained optimistic there won’t be a slowdown anytime soon
The CLO market has been running blazing hot, setting record upon record. On both issuance and performance, it’s been an historic start to a year, in both the US and Europe. Investors have flocked to the market, causing spreads to narrow to all-time tights, even as geopolitical uncertainty and the looming threat of a tariff war cloud the horizon.
The surge in activity — which surprised market observers — comes on the back of what was already a record year for issuance in 2024. Then, following the busiest January on record, February saw no fewer than 138 deals price globally, valued at over USD 62.5bn — a new record figure for February issuance, and a 51% jump over February 2024. That figure was also more than USD 8bn greater than the previous high for global February issuance, the USD 54.45bn recorded across 119 deals in 2021.
Triple A spreads February 2022-25 (bps)
Source: Creditflux data
Spread compression in the US
The degree of spread tightening also set records. January saw significant spread compression in the US, with the low for BSL triple A spreads narrowing in to SOFR-plus-113bps, some 11bps inside where they ended 2024. February saw an additional six new US issues price at that level. At the end of the month, top-of-stack spreads tightened yet further, when Oak Hill Advisors priced OHA Credit Funding 20 with triple As at 110bps above SOFR.
62.5
bn
$
February 2025 saw record CLO issuance, with 138 new deals
These levels represent all-time tights for US BSL triple A spreads, reflecting ongoing enthusiastic investor demand for CLO paper. That demand has also been reflected in CLO ETF products such as Janus Henderson’s AAA CLO ETF, which over the first two months of the year has seen additional inflows of USD 5.29bn. That’s seen it pass the USD 20bn AUM mark for the first time, with the fund growing by almost a third since the end of 2024.
European issuance is also proceeding apace, albeit less frenetically than in the US, and not quite at the record level of 2021. This February, 21 deals priced in Europe, against 17 in the same period last year. The market also remains a considerable way from the record tight spreads seen in the first quarter of 2018, when triple As hit 70bps above Euribor.
US BSL triple A spreads 2025 YTD (bps)
Global CLO issuance February 2022-25 (USD)
Global CLO pricings February 2022-25
Source: Creditflux data
Optimism for the near term
Both managers and investors cite ongoing positive momentum and strong technicals as reasons to remain optimistic about the near-term outlook for CLOs. But opinion is divided on the potential for further tightening. In particular, concerns have recently been exacerbated by the imposition of tariffs and the shifting political situation in Ukraine, with its implications for future government spending, particularly among European investors.
This said, the spread differential between European and US markets, which had expanded early in the year as US spreads comparatively narrowed much more, began to close up again in February, as investors took advantage of the spread premium.
Having ended January with the benchmark triple A level at Euribor plus 122bps, top-of-stack spreads steadily compressed over the following weeks, with eight deals pricing their triple A paper below Euribor plus 120bps by the end of February. The average weighted cost of debt for European CLOs tightened by more than 4.8bps between January and February, from Euribor plus 188.7bps, to Euribor plus 183.87bps.
5.29
bn
$
Inflows to Janus Henderson’s AAA CLO ETF in January and February
The middle market has also made a flying start in 2025, with 16 private credit deals, worth USD 7.5bn, pricing in February. As with US BSL, this segment of the market has lately seen its tightest spreads ever, with an ongoing tightening cycle seeing a continued reduction in the premium over BSL deals.
By the end of February, the tight for triple A paper in middle market CLOs had hit 136bps over SOFR, with the premium over BSL spreads narrowing to around 25bps. Adjusted for the difference between SOFR and Libor, current spread levels are well inside the previous tight reached in the first half of 2018 by Antares, which hit Libor plus 125bps for its triple A paper.
Last year started as a recovery year that morphed into a record-setting one, following two years of tepid issuance as the market suffered the after-effects of the Ukraine invasion and inflation-induced rate hikes. This year is charting a course to match or exceed it.
