Rates desks seek CLO tranches for spare parts

By Owen Sanderson
10 Oct 2019

Rates trading desks are seeking owners of triple-A European CLO tranches, because of the value of the embedded Euribor floors, which convert negative Euribor prints to 0%. These can be stripped out and sold to the market, monetising a feature of the bonds that has become sharply more valuable as euro interest rates have plunged this summer.

One managing director in rates structuring said he was putting on this trade with internal counterparties that held CLO bonds, while a veteran CLO investor said he had had enquiries driven by this trade.

“People who are long this asset can either keep the floor, and monetise the ...

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