In an environment where interest rates are rising, Head of U.S. Securitized Products John Kerschner and Portfolio Managers Nick Childs and Jessica Shill discuss how an allocation to CLOs may help diversify traditional fixed income portfolios.
- CLOs offer portfolios of floating-rate bank loans securitized across the rating spectrum. The availability of floating-rate bonds is limited in the U.S., and the choices for high-quality floating-rate securities are even more limited, yet around 80% of CLOs carry a credit rating from A to AAA.
- Relative to the investment-grade corporate credit market, CLOs have offered a consistent yield premium across the rating spectrum, in some cases as much as two times the yield offered over U.S. Treasuries.
- In an environment where interest rates are rising, allocations to CLOs may help investors diversify a traditional fixed income portfolio, offering lower volatility, higher credit-quality and less sensitivity to any rise in interest rates.