CLOs

As inflation continues to outstay its welcome in the global economy, we have previously discussed the impact of rising input costs on corporates and how crucial pricing power can be in such a challenging environment.

Collateralised Loan Obligations, or CLOs, are bond instruments issued to fund a specific pool of loans, typically senior secured or ‘leveraged’ loans, to companies.

TwentyFour Portfolio Manager, Elena Rinaldi, explains how European ABS markets behaved in Q1 2022 and provides her outlook for the year ahead.

Global bond markets have moved sharply in the wake of Russia’s invasion of Ukraine as investors have tried to assess the impact of an unprecedented raft of financial and economic sanctions. Mark Holman looks at the potential implications for inflation and growth, and highlights some areas of fixed income where yields have risen to near-crisis levels.

As 2021 wore on we became increasingly concerned that the disconnect between asset prices, economic fundamentals and monetary policy was becoming more acute.

The first month of 2022 has passed, and it’s been quite a roller coaster for broader equity and credit markets, with volatility climbing to its highest level since January 2021.

TwentyFour Partner and Portfolio Manager, Douglas Charleston, explains how ABS markets have performed in Q4 2021 and provides his outlook for the new year.

If 2021 was a bad year for global bond returns, it follows there were few natural shelters to be found within fixed income from the brunt of inflation and rates-driven volatility; the Barclays Global Aggregate Index (a widely used broad measure of bond performance) returned -4.7% in USD terms, while European investment grade credit returned -1.1% despite credit spreads tightening over the course of the year.

Inflation was the dominant theme across financial markets in 2021, and we think it is likely to be a big driver of returns again in 2022.

With inflation and rate hikes dominating market discourse, we expect floating rate assets such as ABS and CLOs to benefit from increasing demand in 2022.

The first two trading weeks of the year are coming to an end and unlike previous years they have been packed with activity.

Markets have clearly experienced some periods of volatility this year, and while European CLOs haven’t been immune to this, both fundamentals and prices have been remarkably stable.