CLO AAA, AA tranches improve; trading volume elevated in high-grade CBO/CDO/CLO paper

By Cristal Cody

Tupelo, Miss., March 25 – CLO AAA and AA spreads are improving along with the broader financial markets, while secondary trading remains elevated but moderated from Monday’s levels, sources reported on Wednesday.

“We see some green shoots in the CLO secondary market, as senior classes moved tighter, after leading the widening for the past two weeks,” Wells Fargo Securities LLC analysts said in a report on Wednesday. “Roughly, we see single-A levels as unchanged yesterday, while BBB and BB spreads again moved wider. This reverses the recent trend of senior tranches leading the widening.”

AAA and AA prices increased by about 3 points to 5 points on Tuesday, while benchmark AAA spreads are in the mid to high 300 basis points area and AAs in the mid 400 bps range, according to the report.

“Euro CLO spreads have not yet rallied, but we do see a slowdown in widening, and think senior euro CLO levels may be poised to turn the corner,” the analysts said.

In the U.S. secondary market, selling this week “has been more balanced throughout the capital stack, as opposed to the heavy supply of senior bonds last week,” the analysts said. “With senior bonds in the 80’s or low 90s, we think some investors finally found the levels compelling, given the credit support and cash trapping protection provided for senior tranches.”

Securitized secondary trading remains elevated in high-grade CBO/CDO/CLO paper but moderated from Monday’s levels, according to Trace data.

Volume declined to $1.7 billion on Tuesday from $3.19 billion on Monday, while trading in lower-rated tranches increased to $170.28 million from $50.73 million at the start of the week.

The high-grade securities softened to a 76.80 average price from 80.70 on Monday and down from the 86-89 area last week.

Average prices on non-high-grade CBO/CDO/CLO paper improved modestly to an average 54.20 price on Tuesday from 50.80 on Monday.

In the previous week, the issues traded at 64 to 68 price averages.

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