After a grim winter frost, Wall Street has mostly warmed up as markets have rebounded. Investment-grade and high-yield bond offerings are flowing again.
But collateralized loan obligations, or CLOs, remain frozen after the void of volatility. Should CLO issuance remain scarce in 2016, it could reverberate across lending markets as loans will become more difficult to place and liquidity will tighten elsewhere on Wall Street.
Banks are slashing expectations for issuance and tightening in the market is reminiscent of the plummet in CLO deals that coincided with the onset of the global financial crisis. Yet, many experts are maintaining a stiff upper lip in the face of harsh data, especially as other asset classes have bounced back from a plunge to begin 2016.
"It's down drastically, issuance has been very light," said Bjarni Torfason, vice president of research at Deutsche Bank. "We are expecting the pace to pick up."
It took until late January for the first CLO deal to get done. Roughly $4 billion in CLOs have priced to date in 2016 (which counts this week's issuance), compared to nearly $16.9 billion for the week ended March 4, 2015, JPMorgan data show.