AAA Spreads and the Drivers of CLO Liability Pricing

The discussion turns to why CLO AAA spreads have not tightened as much as other parts of the capital structure. Peter Polanskyj argues that non-standardised documentation creates a structural floor on AAA yields relative to more commoditised ABS products. David Altenhofen adds that rising interest rates have reduced the relative attractiveness of CLO AAAs for European pension funds compared to domestic alternatives like Danish mortgage bonds, dampening demand at the top of the stack.