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The Giant Market of CLOs

A booming market, an exposed industry and a distressed economy make CLOs a more than ever important subject.

The market of CLOs boomed 2021 reaching incredible volumes. 2022 presented challenges to the fixed income (and equity) markets following rising inflation and interest rates together with the war and a general global distress. Moreover, this industry has often been overly criticised as some see (mistakenly) too many similarities with the hated CDOs. These arguments make CLOs and structured finance a more than ever interesting subject. We begin with a general description of structured finance and CLOs with their investment applications. We proceed by analysing the market outlook and the industry performance in order to take a look at how the current and future situation is looking for investors. We also make a mathematical analysis of valuation model which is an extremely interesting insight in the theoretical concepts behind this industry. Finally, we analyse the condition of the exposure of the banking sector to these securities. All this gives us a question that we want to answer: CLOs, threat or opportunity?"

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