High investor demand for collateralized loan obligation paper is squeezing spreads to their tightest levels in more than a year, even as improving monthly CLO issuance has reached its highest level of 2016.

According to Wells Fargo research, primary issue ‘AAA’-rated spreads between the cost of debt and the investor yield reached an average of 145 basis points last week, the tightest for the most senior CLO tranches since July 2015. They have narrowed sharply from the 190 basis-point area that reflected the lackluster demand and CLO issuance trends in February.  

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