US CLOs Are Piling Into Cheap Junk Bonds, Adding Rates Risk

The biggest buyers of US leveraged loans are increasingly turning to the bond market to find better value.

Money managers that buy syndicated bank loans and package them into US collateralized loan obligations have started adding more corporate bonds, according to a recent report from U.S. Bancorp, which says its a trustee for about half the CLO market. About 34% of CLOs owned at least one corporate bond in May, up from fewer than 20% at the end of 2021, said the bank, based on data from trustee reports.

CLOs are often allowed by their investment agreements to invest ...