CLO double-As are cheap relative to underlying assets, says JP Morgan

Relative value can be found in CLO double-As, according to JP Morgan analysts. In its weekly research report the bank compares the yield obtained from a set of first-lien loans to those on CLO tranches. It found that European CLO double-As, which give 9-10% yield, price wider than two-thirds of the European loan market, whilst giving subordination of 27% against defaults. Similarly in the US, CLO double-As (7% yield) price wider than 55% of US loans with attractive subordination levels of 25% on average.

When using this mapping technique, it is unclear whether junior CLO positions offer the same value. The bank adds that investor credit views, "yield bogeys" and liquidity constraints on stressed loans makes it more difficult to compare against junior CLOs.