The disconnect between financing conditions and actual deal flow highlights a broader hesitation in the credit markets. While the ICE BofA US High Yield option-adjusted spread hovers near an annual low of 284 basis points—a sharp decline from the 461 basis point high recorded in April 2025—issuance has not kept pace with the accommodating environment. Investors appear to be prioritizing credit quality over the sheer volume of new supply.
CLO Market Stagnates Despite Favorable Credit Environment
Collateralized loan obligation issuance remains sluggish despite tight credit spreads and stable portfolio metrics. New data from Egan-Jones shows July volume hit 111 deals worth $43.2 billion, a marginal increase from June that fails to approach the November 2024 peak of $54.6 billion, suggesting underlying caution among market participants.
Portfolio health remains robust, with the weighted average rating score across the 1,622 deals analyzed by Egan-Jones showing slight improvement. The concentration of assets rated CCC+ or lower has stabilized, and senior tranche subordination currently averages 35.5 percent. Despite these indicators of stability, Egan-Jones notes that the cooling of asset and tranche coupon declines points to a market reaching a plateau. The firm maintains a more optimistic outlook on credit quality than other agencies, underscoring a persistent tension between the strength of existing collateral and the muted appetite for new debt structures.
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