CLO investors fret as rate hikes loom

Rising default rates could trigger a stampede out of the market

A man running for the exit
CLO investors could rush for the exits if rate hikes trigger a spike in defaults

The US Federal Reserve's widely anticipated rate hikes could spell trouble for investors that loaded up on collateralised loan obligations (CLOs) in the second half of 2016.

"There's a lot of downside in the lower part of the capital structure and we agree that risks have not been fully priced in," says Renyuan Gao, founder and chief investment officer at Westfield Investment, a hedge fund based in Mountainside, New Jersey. "You're getting mediocre returns, spreads are tight, and there's a lot

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