Loan spread tightening squeezes CLO arbitrage for managers

Searching for an equilibrium

A question of balance: CLOs need an equilibrium between asset and liability spreads

With combined US and European year-to-date supply running at around $2 billion at the end of the first quarter, investor uptake of new collateralised loan obligations is on track to beat last year’s $4.3 billion by a significant margin. Indeed, dealers have recently confirmed their expectations for 2011 issuance of between $10 billion and $15 billion.

Although this is a far cry from the $80 billion printed at the height of the structured finance boom, investors say the product’s ability to

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