What is a Collateralized Loan Obligation (CLO)?

Collateralized loan obligations (CLO) are portfolios of leveraged loans, a type of below-investment grade loan usually taken out by more heavily indebted companies. Each CLO is divided into a series of tranches with different degrees of risk. The more senior tranches receive their interest payments first, and therefore, have a higher credit rating. Since the loans carry a floating rate of interest, CLOs provide investors with better protection from inflation and rising interest rates than bonds that have fixed payments.

Who typically invests in CLOs?

Banks, insur

“Why did God create economists? To make weathermen look good!”

The US economic recovery continues, with the majority of economic data coming in much better than expected. From the more than 10 million jobs beat in the May employment report to a huge beat in retail sales, the economy appears to be coming back faster than most expected.

“The economic data is coming in so much better than expectations that it is making most economists look outright silly in how far off their estimates have been,” explained LPL Financial Senior Market Strategist Ryan Detrick. “Of course, the stock market doe

What can we learn about investment income opportunities from coupon-clipping environments? From 1977 to 2019, the price of the Bloomberg Barclays US Aggregate Bond Index rose in 22 calendar years and fell in 21 years, but, adding in the index’s coupon income, the index rose in 40 of 43 years. (The down years were 1994, 1999, and 2013.)

“While investors don’t clip actual bond coupons anymore, investment income is still essential for many investors, and has also provided an important cushion against possible price losses,” said LPL Financial Chief Investment Officer Burt White.

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The US economy has made impressive progress in recent weeks. As the economy re-opens, the way we assess the recovery has changed. In March and April, we were looking for evidence that growth in COVID-19 cases was decelerating—which thankfully it did—along with evidence that a recession was priced into stocks and that stimulus measures were sufficient to get us through the crisis. We used our Road to Recovery Playbook, shown below, to help us determine how the market was progressing in its bottoming process.

Using this framework, stocks are clearly no longer pricing in a recession (#3); in fact, the recession in the Un