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  • Writer's pictureCapra Ibex

CLO Insider: Risk-On Mentality Returns in June

By Mike Kurinets, Chief Investment Officer

Key Takeaways:

  • The US avoided default. On June 1, both chambers of the US Congress passed the new budget and averted the imminent US government default.

  • Loan prices rose sharply in June. The price of leveraged loans rose nearly 1.5 points in June. Loan prices rose on each day and investor confidence began to flood back into the market.

  • The market anticipated a soft landing. Investor consensus seemed to indicate that it did not expect the US economy to experience a recession or a hard landing.

  • Inflationary pressures continued to ease. The YoY CPI came in at 4.0% vs 4.9% in May, and the MoM CPI came in at 0.1% [1]. The market interpreted the decreasing inflation numbers as a sign that Fed’s rate hikes were taking effect while the economy remained strong.

  • CLO liabilities tightened. On average, CLO liabilities tightened by 16 basis points in June.

The Market Perceived a Soft Landing, and Investors Returned to Risk-On

Most participants seemed to agree that despite 10 consecutive rate hikes, and with one or two additional rate hikes likely, the US economy will experience a soft landing. This realization seemed to affect all credit markets, including the leveraged loan and CLO markets.

Demand for CLO tranches, across all ratings, increased throughout the month. By the end of June, demand picked up even for lower quality CLO debt as well as for riskier CLO equity (equity positions for CLOs that seemed likely to halt cash flows to equity).

Within a matter of weeks, all of the recent concerns -- such as the regional banking crisis, an imminent US government default, and a hard landing -- seemed to disappear.

Instead of sitting on the proverbial sidelines, many investors began to add leveraged loan and CLO positions.

CLO liabilities tightened sharply in June

As loan prices rose in June, spreads on CLO liabilities tightened across every part of the CLO capital structure.

No CLOs were refinanced or reset in June.

June spread movements are below [2]:

CLO Tranche Rating

May 31, 2023 (bps)

June 30, 2023 (bps)

June Spread Change (bps)






















[2] Spreads from CitiVelocity.

Forward Looking Statements:

Some of the statements contained in this presentation constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. The forward-looking statements contained in this presentation reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances, many of which are beyond our control, that may cause our actual results to differ significantly from those expressed in any forward-looking statement. Statements regarding the following subjects, among others, may be forward-looking: the use of proceeds from our public and private offerings (as the case may be); our business and investment strategy; our projected operating results; our ability to obtain financing arrangements; financing and advance rates for our target assets; our expected leverage; general volatility of the securities markets in which we invest; our expected investments; effects of hedging instruments on our target assets; rates of leasing and occupancy rates on our target assets; the degree to which our hedging strategies may or may not protect us from interest rate volatility; liquidity of our target assets; impact of changes in governmental regulations, tax law and rates, and similar matters; availability of investment opportunities; availability of qualified personnel; estimates relating to our ability to make distributions; our understanding of our competition; and market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy. While forward-looking statements reflect our good faith beliefs, assumptions and expectations, they are not guarantees of future performance. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes. This presentation contains statistics and other data that has been obtained from or compiled from information made available by third-party service providers. We have not independently verified such statistics or data.


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