Q2 US CLO Wrap: Macro risks drag new issuance to slowest pace since 2023

The US CLO market is heading into the second half of 2026 with clear challenges. Loan spreads are relatively tight versus CLO liabilities, putting the squeeze on equity and arb conditions that have limited new-issue volume, which is down more than 20% from last year's pace. Many issuers from 2025 have been on the sidelines this year — only 88 unique managers have priced deals at the midpoint of 2026, versus 107 a year ago. AI-driven disruption has driven up risk in software holdings, the largest industry concentration sector in CLOs, and the Iran conflict has triggered volatility in energy-related names.

Bank research points to better issuance conditions in H2, though new-deal volume is projected to fall short of last year's record $209 billion. Most sell-side forecasts for 2026 new-issue volume are still clustered in a $190-220 billion range, with JPMorgan the key bear at $140-150 billion and Morgan Stanley trimming its estimate from $200 billion to $180 billion.

Analysts who authored Deutsche Bank's mid-year report ("Reflections at the midpoint," June 15) asserted that new-issue pricings should be constructive in the back half of 2026, with spreads expected to remain rangebound to current levels and CLO investor concerns over macro and geopolitical risks to decrease.

Managers priced $30.2 billion across 65 US CLOs in the second quarter, the lowest quarterly new-issue volume since Q3 2023, when distress from regional bank failures dented institutional demand for structured products. In 2026, the slowdown came from a different mix of shocks: the February-March software selloff in leveraged loans, and the war in Iran, which pushed energy prices higher and injected fresh macro volatility into credit.

Issuance troughed in April at just $6.2 billion — the weakest month since December 2023 — as primary loan supply dipped and both BSL and MM CLO spreads widened for a second straight month. During this period, loan spreads were still roughly 40 bps tighter than their five-year average, even as CLO liabilities sat only modestly wider, a setup that led many managers to prioritize refinancings and resets over new issuance.

Issuance rebounded to $16.8 billion in May and has held up through mid-June ($7.2 billion through June 19). Even so, at $77.2 billion year to date, the market is still about 23% behind last year's $99.8 billion pace.

New issuance in 2026 has been split between $59.9 billion of BSL and $17.3 billion of middle market/private credit CLOs. BSL volume fell to $22.5 billion in the second quarter, a low since Q3 2023. Middle market issuance of $17.3 billion through June 19 is roughly in line with the first six months of 2025. After a soft April ($2.0 billion), middle market issuance bounced to $3.6 billion in May, helped by spread compression that also supported BSL supply. AAA spreads in middle-market/private credit deals were broadly in the 150-160 bps context in April, but during May two middle market deals — Golub Capital Partners CLO 91(M) and Blackstone's BCRED CLO 2026 2 — printed AAAs at S+148 bps, returning the market effectively to February's tighter spreads.

Viesturs Davidcuks/Getty Images/iStockphoto

This article originally appeared on PitchBook News

View Comments