While some market participants are predicting CLOs will cool down following this summer’s rally, many believe pools of mezzanine debt within CLOs will remain red hot.

Investors who bought mezzanine CLO debt earlier this year have, in many cases, doubled their initial investment over the course of just a few months, according to analysts at Citigroup. Mezzanine tranches have even performed better than triple-A loans, which haven’t seen the surge in prices that mezzanine debt has. Investors who invest in diversified pools of mezzanine debt can achieve returns of roughly 20%, according to the Citi analysts.

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