CLO market mute following July 4 holiday weekend, Greek rejection of bailout terms

By Rebecca Melvin

New York, July 6 – The primary market for collateralized loan obligations was quiet on Monday as the ranks of market players remained thin after the three-day holiday weekend in observance of July 4 and after Greece’s referendum in which the country voted against accepting creditor demands, or austerity, in exchange for a debt bailout package.

Following the vote, Greek finance minister Yanis Varoufakis resigned.

Stocks fell and bonds rose on Monday in response to the vote, although the moves were relatively mild compared to what some expected. And credit widened, which hurts leveraged strategies.

June was a rough month to begin with. Yields and spreads for fixed income rose. In addition poor liquidity was cited as an emerging problem, but BofA Merrill Lynch said in its last securitization report that the concerns were “probably overblown.”

On Monday, the yield on the U.S. 10-year Treasury note fell nearly 10 basis points to 2.287%. That compares to June when the yield on the 10-year jumped to about 2.48% from 2.12%.

Volatility is expected to continue, market sources say. Many believe that the Greece “no” vote makes a Greek exit from the euro inevitable. But it is possible that the economic hardships that ensue for that nation may cause the government to be replaced, and that the new government will negotiate to stay in the euro.

Negotiations that are expected to resume Tuesday among Eurogroup leaders and Greece may be typical of the variety that have yielded nothing but an impasse in recent weeks.

An important upcoming date is July 20 when Greece has a debt payment due to the European Central Bank. If Greece misses the payment, then the bank could withdraw emergency funding, referred to as Emergency Liquidity Assistance, which could collapse Greece’s banking system, an informed source said.

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