{"id":42121,"date":"2023-07-29T22:47:25","date_gmt":"2023-07-30T02:47:25","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/clos-continue-to-climb-as-spreads-tighten-and-coupons-rise\/"},"modified":"2023-07-29T22:47:27","modified_gmt":"2023-07-30T02:47:27","slug":"clos-continue-to-climb-as-spreads-tighten-and-coupons-rise","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=42121","title":{"rendered":"CLOs Continue To Climb As Spreads Tighten And Coupons Rise"},"content":{"rendered":"
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CLOs generated strong returns in June, with a hawkish Fed driving coupons higher and a rally in spreads. CLOI continues to outperform its benchmark in 2023.<\/em><\/p>\n

The VanEck CLO ETF (the \u201cFund\u201d)<\/strong> (CLOI) has outperformed its benchmark, the J.P. Morgan CLO Index year-to-date through June 30, 2023, and since the fund launched in June 2022. In the second quarter, however, the Fund\u2019s more conservative positioning detracted from performance amid a rally in risk asset classes. Security selection, however, added to performance and has been the main contributor to outperformance since the Fund launched. Relative value opportunities from security and manager selection remain the focus, while the Fund stays higher in quality. When the market backdrop improves, we expect to add exposure further down the capital stack.<\/span><\/p>\n

Market update<\/h2>\n

CLOs generated the strongest monthly total returns since January, alongside strong performance across most risk asset classes, as investor sentiment improved markedly in June. This came despite a Fed narrative that was more hawkish than many investors\u2019 expectations. Specifically, despite the rate hike pause at their June meeting, the median interest rate dot for 2023 was revised higher to show two more hikes this year with this projection widely held among FOMC participants. On the positive side, the Fed\u2019s preferred measure of inflation came in lower than expected in May. Core PCE rose 4.6% year-over-year, down from 4.7% in April and below economists\u2019 median estimates. The technical backdrop remained supportive as lower new issuance was met by higher TRACE supply, helping to drive secondary CLO spreads tighter. US Treasury rates increased in June, with 5- and 10-year Treasury rates trading 40 bps and 19 bps higher during the month, respectively.<\/span><\/p>\n

CLOs outperformed investment grade and high-yield corporate bonds, as well as core U.S. bonds, during the quarter but underperformed leveraged loans.<\/p>\n

<\/span><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n
Asset Class<\/td>\nQ2 2023 Return (%)<\/td>\nYield to Worst (%)<\/td>\nSpreads (bps)<\/td>\n<\/tr>\n
CLOs<\/td>\n2.43<\/td>\n7.11<\/td>\n276<\/td>\n<\/tr>\n
AAA<\/td>\n2.04<\/td>\n6.43<\/td>\n197<\/td>\n<\/tr>\n
AA<\/td>\n2.46<\/td>\n6.74<\/td>\n261<\/td>\n<\/tr>\n
A<\/td>\n3.62<\/td>\n7.48<\/td>\n340<\/td>\n<\/tr>\n
BBB<\/td>\n3.84<\/td>\n9.36<\/td>\n532<\/td>\n<\/tr>\n
BB<\/td>\n4.70<\/td>\n14.58<\/td>\n1024<\/td>\n<\/tr>\n
Investment Grade Corporates<\/td>\n-0.21<\/td>\n5.56<\/td>\n130<\/td>\n<\/tr>\n
U.S. Agg<\/td>\n-0.82<\/td>\n4.85<\/td>\n54<\/td>\n<\/tr>\n
Leveraged Loans<\/td>\n3.17<\/td>\n10.19<\/td>\n476<\/td>\n<\/tr>\n
High Yield Bonds<\/td>\n1.63<\/td>\n8.56<\/td>\n405<\/td>\n<\/tr>\n<\/table>\n

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