CLOs Risk Starring Role in This Recession When Default Wave Hits
- CLO prices reflecting just a fraction of likely defaults: UBS
- Like CDOs in 2008, loan problems could infect wider economy
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Michael Lewis’s “The Big Short” told the story of CDOs, now infamous debt securities that played a starring role in the last financial crisis. This time around their cousins could be thrust center stage.
The market for collateralized loan obligations is currently pricing just a fraction of the likely wave of defaults caused by the coronavirus, according to UBS Group AG. The warning comes as a slew of data this week points to the scale of the unfolding economic collapse, with U.S. gross domestic product shrinking the most since 2008 in the first quarter.