Key takeaways:
- Rating agencies are updating their CLO methodologies to reflect a larger pool of historical performance data, recognising stronger realised default and recovery outcomes than previous assumptions implied.
- The rating upgrades expected across parts of the CLO market are largely a technical adjustment, with the potential to improve liquidity, support spreads and broaden the eligible investor base for certain tranches.
- Nevertheless, active analysis through specialist expertise remains ever more essential. Assessing collateral quality, deal structures and CLO manager behaviour will continue to be more important than ratings alone when identifying opportunities across the CLO market.
Rating recalibration better reflects history
The collateralised loan obligation (CLO) market has grown substantially in both Europe and the US since the Global Financial Crisis (GFC). This has been supported by attractive yields on a risk-adjusted basis and a broad spectrum of rated securities that appeals to a range of investor types. Strengthened underwriting, structural protections and regulatory oversight have been underpinning the growth in the sector post-GFC.
As the market has matured, rating agencies have accumulated a far deeper dataset of default and recovery experience than was available when many of their existing CLO methodologies were first developed. Figure 1 shows the actual default experience in CLOs. Against this backdrop, both Moody’s and Fitch have recently proposed or implemented changes to their CLO rating methodologies that are expected to result in rating upgrades across the US and European market.
Figure 1: Default rates for CLOs
European CLO cumulative default rates, conditional on survival, 2002‑2025 (%) 
US CLO cumulative default rates, conditional on survival, 1997‑2025 (%)
Source: S&P Global Ratings Credit Research & Insights and S&P Global Market Intelligence’s CreditPro. IG=Investment Grade. SG=Speculative Grade. Data as at end 2025. Past performance does not predict future returns.
While some investors may initially view upgrades with scepticism, we believe these changes should largely be viewed as a recalibration of rating assumptions to better reflect observed historical performance rather than a loosening in underwriting standards.
What has changed?
Fitch
- Revised its recovery assumptions to better reflect realised historical recoveries on the underlying loans of CLOs.
- Greater emphasis on characteristics such as seniority, collateral security, jurisdiction and historical recovery performance when estimating recoveries.
Moody’s
- Incorporated a larger historical default dataset into its analysis and concluded that actual CLO portfolios have experienced lower default rates than previously assumed.
- Greater emphasis on the characteristics of the actual underlying portfolio rather than relying primarily on portfolio limits and documentation assumptions.
What is the expected outcome?
- Fitch estimates 5-15% of its CLO ratings could be upgraded with most expected to be 1-2 notches.
- Moody’s estimates that around 33% of sub-AAA CLO tranches could receive a 1-2 notch upgrade.
- The greatest rating migration is expected in investment grade tranches below AAA (AA, A and BBB), though AA tranches appear to have the most potential to migrate upwards.
- Some lower mezzanine tranches may also benefit depending on the specific transaction and methodology applied.
A positive technical factor for CLOs
For investors, the implications are likely to be predominantly technical rather than fundamental. Higher ratings may support tighter spreads, improved secondary market liquidity and a broader pool of eligible investors, particularly where investment mandates, capital requirements or regulatory frameworks are linked to credit ratings. Certain tranches that migrate into higher rating categories may benefit from increased demand from such rating-constrained investors.
It is noteworthy that the methodology changes are driven by evidence. CLOs have generally exhibited stronger default and recovery outcomes than many of the assumptions embedded in older rating models. The agencies are therefore seeking to better align ratings with realised performance rather than redefining risk itself.
The long-term track record of the asset class also provides useful context. CLO ratings have historically demonstrated considerable stability, supported by structural protections, limited idiosyncratic risk and substantial diversification. Since the inception of the CLO market in the late 90’s, around 95% of AAA-rated tranches have maintained their rating through maturity.1
As active investors, we view ratings as only one reference point. Fundamental analysis of collateral quality, CLO manager behaviour, deal structures and portfolio construction remains critical. We will continue to monitor rating actions as Fitch resolves its review population and Moody’s finalises its methodology updates.
As more rating actions emerge, the market should gain a clearer understanding of which upgrades are genuinely attributable to the revised methodologies, and which reflect the normal seasoning, deleveraging and performance evolution that occurs throughout a CLO’s lifecycle. Ultimately, we believe these developments represent a constructive recognition of the asset class’s historical resilience.
IMPORTANT INFORMATION
Collateralised Loan Obligations (CLOs) are debt securities issued in different tranches, with varying degrees of risk, and backed by an underlying portfolio consisting primarily of below investment grade corporate loans. The return of principal is not guaranteed, and prices may decline if payments are not made timely or credit strength weakens. CLOs are subject to liquidity risk, interest rate risk, credit risk, call risk and the risk of default of the underlying assets.
Diversification neither assures a profit nor eliminates the risk of experiencing investment losses.
High-yield or “junk” bonds involve a greater risk of default and price volatility and can experience sudden and sharp price swings.
Fixed income securities are subject to interest rate, inflation, credit and default risk. As interest rates rise, bond prices usually fall, and vice versa. High-yield bonds, or “junk” bonds, involve a greater risk of default and price volatility. Foreign securities, including sovereign debt, are subject to currency fluctuations, political and economic uncertainty and increased volatility and lower liquidity, all of which are magnified in emerging markets.
Securitised products, such as mortgage- and asset-backed securities, are more sensitive to interest rate changes, have extension and prepayment risk, and are subject to more credit, valuation and liquidity risk than other fixed-income securities.
1 Source: S&P Global, 16 June 2026.
Capital requirements: Rules that determine how much financial cushion institutions must hold against certain investments.
Collateral: Assets used to support or secure a loan or investment; in CLOs, this usually refers to the pool of underlying loans.
Collateralised Loan Obligation (CLO): A securitised portfolio of corporate leveraged loans rated below investment grade (a rating on a bond where the borrower is perceived as having a relatively low risk of defaulting on repayment). The underlying loan pool is financed through the issuance of bonds that are structured into tranches with differing risk profiles, where interest and principal payments are prioritised according to each tranche’s position in the capital structure.
Credit rating: An independent assessment of the creditworthiness of a borrower by a recognised agency such as Standard & Poor’s, Moody’s, or Fitch. Standardised scores such as ‘AAA’ (a high credit rating) or ‘B’ (a low credit rating) are used, although other agencies may present their ratings in different formats.
Credit spread: The difference in yield between securities with similar maturity but different credit quality, often used to describe the difference in yield between corporate bonds and government bonds. Widening spreads generally indicate a deteriorating creditworthiness of corporate borrowers, while narrowing indicates improving.
Default: The failure of a debtor (such as a bond issuer) to pay interest or to return an original amount loaned when due.
Deleveraging: A company reducing its borrowing/debt as a proportion of its balance sheet (the opposite of leveraging ).
Diversification: A way of spreading risk by mixing different types of assets or asset classes in a portfolio on the assumption that these assets will behave differently in any given scenario. Assets with low correlation should provide the most diversification.
High-yield bond: A bond with a lower credit rating than an investment-grade bond, also known as a sub-investment grade bond, or ‘junk’ bond. These bonds usually carry a higher risk of the issuer defaulting on their payments, so they are typically issued with a higher-interest rate (coupon ) to compensate for the additional risk. Speculative grade is another term for high yield.
Idiosyncratic risk: Factors that are specific to a particular company and have little or no correlation with market risk.
Investment grade: A fixed income security typically issued by governments or companies perceived to have a relatively low risk of defaulting on their payments, which is reflected in the higher rating given by credit ratings agencies.
Liquidity: A measure of how easily an asset can be bought or sold in the market. Assets that can be easily traded in the market in high volumes (without causing a major price move) are referred to as ‘liquid’.
Mezzanine tranche: A middle layer of a CLO’s capital structure that typically carries more risk than senior tranches but may offer higher potential income.
Rating agency: An organisation that assesses the creditworthiness of borrowers or debt investments, such as Moody’s or Fitch.
Recovery rate: The proportion of money investors may recover if a borrower defaults.
Risk-adjusted basis: A way of comparing investment returns after taking account of the level of risk involved.
Secondary market: The market where existing investments are bought and sold after they have first been issued.
Securitised products: The pooling of certain types of assets so that they can be repackaged into interest-bearing securities together which constitutes a market for buying or selling. The interest and principal payments from the assets are passed through to the purchasers of the securities.
Seniority: Determines the order in which investors are paid in the event of a default, with implications for the bond’s risk, pricing and investment return.
Tranche: A slice of a structured investment such as a CLO, with each tranche carrying different levels of risk, return, and payment priority.
Underwriting standards: The criteria lenders or investors use to assess the quality and risk of loans before they are made or included in a portfolio.
Yield: The level of income on a security over a set period, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, in its simplest form, this is calculated as the coupon payment divided by the current bond price.
Queste sono le opinioni dell'autore al momento della pubblicazione e possono differire da quelle di altri individui/team di Janus Henderson Investors. I riferimenti a singoli titoli non costituiscono una raccomandazione all'acquisto, alla vendita o alla detenzione di un titolo, di una strategia d'investimento o di un settore di mercato e non devono essere considerati redditizi. Janus Henderson Investors, le sue affiliate o i suoi dipendenti possono avere un’esposizione nei titoli citati.
Le performance passate non sono indicative dei rendimenti futuri. Tutti i dati dei rendimenti includono sia il reddito che le plusvalenze o le eventuali perdite ma sono al lordo dei costi delle commissioni dovuti al momento dell'emissione.
Le informazioni contenute in questo articolo non devono essere intese come una guida all'investimento.
Non vi è alcuna garanzia che le tendenze passate continuino o che le previsioni si realizzino.
Comunicazione di Marketing.
Specific risks
Specific risks
- Gli emittenti di obbligazioni (o di strumenti del mercato monetario) potrebbero non essere più in grado di pagare gli interessi o rimborsare il capitale, ovvero potrebbero non intendere più farlo. In tal caso, o qualora il mercato ritenga che ciò sia possibile, il valore dell'obbligazione scenderebbe.
- L’aumento (o la diminuzione) dei tassi d’interesse può influire in modo diverso su titoli diversi. Nello specifico, i valori delle obbligazioni si riducono di norma con l'aumentare dei tassi d'interesse. Questo rischio risulta di norma più significativo quando la scadenza di un investimento obbligazionario è a più lungo termine.
- Il Fondo investe in obbligazioni ad alto rendimento (non investment grade) che, sebbene offrano di norma un interesse superiore a quelle investment grade, sono più speculative e più sensibili a variazioni sfavorevoli delle condizioni di mercato.
- Alcune obbligazioni (obbligazioni callable) consentono ai loro emittenti il diritto di rimborsare anticipatamente il capitale o di estendere la scadenza. Gli emittenti possono esercitare tali diritti laddove li ritengano vantaggiosi e, di conseguenza, il valore del Fondo può esserne influenzato.
- Un Fondo che presenta un’esposizione elevata a un determinato paese o regione geografica comporta un livello maggiore di rischio rispetto a un Fondo più diversificato.
- Il Fondo potrebbe usare derivati al fine di conseguire il suo obiettivo d'investimento. Ciò potrebbe determinare una "leva", che potrebbe amplificare i risultati dell'investimento, e le perdite o i guadagni per il Fondo potrebbero superare il costo del derivato. I derivati comportano rischi aggiuntivi, in particolare il rischio che la controparte del derivato non adempia ai suoi obblighi contrattuali.
- Se il Fondo, o una sua classe di azioni con copertura, intende attenuare le fluttuazioni del tasso di cambio tra una valuta e la valuta di base, la stessa strategia di copertura potrebbe generare un effetto positivo o negativo sul valore del Fondo, a causa delle differenze di tasso d’interesse a breve termine tra le due valute.
- I titoli del Fondo potrebbero diventare difficili da valutare o da vendere al prezzo e con le tempistiche desiderati, specie in condizioni di mercato estreme con il prezzo delle attività in calo, aumentando il rischio di perdite sull'investimento.
- Il Fondo può sostenere un livello di costi di operazione più elevato per effetto dell’investimento su mercati caratterizzati da una minore attività di contrattazione o meno sviluppati rispetto a un fondo che investa su mercati più attivi/sviluppati.
- Le spese correnti possono essere prelevate, in tutto o in parte, dal capitale, il che potrebbe erodere il capitale o ridurne il potenziale di crescita.
- Il Fondo potrebbe perdere denaro se una controparte con la quale il Fondo effettua scambi non fosse più intenzionata ad adempiere ai propri obblighi, o a causa di un errore o di un ritardo nei processi operativi o di una negligenza di un fornitore terzo.
- Oltre al reddito, questa classe di azioni può distribuire plusvalenze di capitale realizzate e non realizzate e il capitale inizialmente investito. Sono dedotti dal capitale anche commissioni, oneri e spese. Entrambi i fattori possono comportare l’erosione del capitale e un potenziale ridotto di crescita del medesimo. Si richiama l’attenzione degli investitori anche sul fatto che le distribuzioni di tale natura possono essere trattate (e quindi imponibili) come reddito, secondo la legislazione fiscale locale.