CLO equity investors stung by Libor basis

Growing mismatch between one- and three-month tenors slashes payouts by a third

scorpion equity markets

Holders of the riskiest tranches of US collateralised loan obligations (CLOs) are seeing their returns crimped as rate hikes fuel a widening basis between Libor rates.

The loans held by CLOs generally reference one-month US dollar Libor, while the debt issued to investors references three-month US dollar Libor, creating a natural mismatch. In a benign market, the rates’ mismatch is usually “very, very tiny”, says Steve Hasnain, CLO manager at Pinebridge. Between 2018 and 2021 the basis averaged

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

Register

Want to know what’s included in our free membership? Click here

This address will be used to create your account

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here