A cornerstone of demand in the $1.4tn US junk loan market is under pressure to sell very risky debt, as President Donald Trump’s trade war sparks fears of recession and ratings downgrades.
Collateralised loan obligation vehicles, which own roughly two-thirds of US riskier corporate loans, may need to slash exposure to weaker borrowers most vulnerable to tariffs and recession because of the potential threat of rating downgrades, according to analysts and investors.
The heightened pressure on CLOs is the latest sign of how fears that Trump’s tariffs could sharply slow US growth are rippling through the corporate debt market. Borrowing costs have risen sharply in recent weeks for riskier bonds and loans, while the rate of new issuance has also cooled.