BNP Sees Wider BB, B CLO Spreads on AI Risk: Structured Weekly

Disruption risks from artificial intelligence ought to create more spread widening and dispersion across collateralized loan obligations, which are still very compressed in the primary market, according to BNP Paribas.

“We think junior mezzanine spreads in primary (BB/B) could drift wider,” strategists David Nochimowski, Mario Lupoli and Haonan Wu wrote on Feb. 19. “While BBs in primary appear tight, we note that the BBs in the secondary market have already repriced wider.”

Once the impact of the recent software-led loan selloff recedes, and pricing fully factors in risks, some secondary BB bonds with low exposure to AI-vulnerable firms ...