Libor Plunge Risks Wreaking Havoc in $670 Billion CLO Market

Tumbling interest rates are throwing a wrench into the collateralized loan obligation market that could eventually lead to dust-ups between different stakeholders, market watchers say.

At the heart of the issue is the plunging London interbank offered rate. Buyers of CLOs, which are tied to the gauge, are increasingly factoring the prospect of negative fixings into their due diligence as the Federal Reserve slashes its benchmark to near zero and three-month Libor sinks below 1%. While the likelihood of it going negative remains small, it would be a major headache for the $670 billion market that buys more than ...