In a new report entitled "Reintroducing CLOs", JP Morgan researchers revisit the investment case for CLOs and describe in detail how the product works and how investors can analyse their investments.

Among other things, the report compares CLO triple A spread levels with other kinds of triple A assets and with bank funding levels. It says that the spread premium of CLO triple As over bank funding levels was 20-25bp in the heyday of the monoline bid in 2006 and 2007. In the funding crisis of early 2008, the differential fell to minus 15-20bp. However, now CLO triple As are 60bp wider than bank funding levels.

The report says that if bank funding costs settle in the 30-40bp range, CLO spreads could tighten to the 80-100bp range where much of the global RMBS and other ABS asset classes trade.