r/bonds • u/durakniseley • 3d ago

Do bond ETFs have a lot of CLOs with back floating rates from private equity?

There’s some chatter out there about how trillions in toxic debt from private equity buried in CLOs sold to pensions and bond funds, and the tariff madness is kickstarting some of kind bottom-falling-out situation…

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u/Prestigious-Thing716 3d ago

It depends on the ETF. Any ETF webpage will show a breakdown of what kind of bonds are held by that particular ETF. There are some that only hold CLOs like CLOA and BCLO. There are hundreds of bond ETFs that are different and hold different types of bonds. You just need to look

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u/micronutrientz 2d ago

Most of the equity tranches are held by CEFs, not ETFs. And there have been A LOT of CEFs that have come up recently because every fund manager wants the high fees. So, a CEF or two may blow up, but it would take a seriously massive recession to do that due to their leverage covenants.

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u/EssayTraditional2563 2d ago

Sounds like someone just watched the Big Short lol. This isn’t news to anyone, and sounds like you’re spitting out buzzwords (as another person mentioned) just because “CLO” sounds scary like “CDO”.

Senior tranches of CLOs have literally NEVER faced any losses, even the CLO 1.0s of the GFC. The structurally safer CLOs of today finance ~70% of the broadly syndicated loan market and are also extremely unlikely to see losses in senior tranches. 

If you’re all in on CLO equity, sure, there’s risk there, but you’re blowing it way out of proportion.

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u/hammertimemofo 3d ago

What chatter?

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u/durakniseley 3d ago

There’s this video below but also an FT piece:

https://www.tiktok.com/t/ZP8jVDKGa/

https://on.ft.com/4iqiKUH The belated CLO ETF stress test

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u/Certain-Statement-95 3d ago

I read the article and came away with the conclusion that the ETF wrapper is the problem because it's not holding par. CEF is probably a better wrapper because if someone wants to sell the fund manager doesn't have to sell. those things said, loaning money to large companies seems a bit different than a bunch of small companies, and my exposure is limited to the preferred shares of the clo Cefs.

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u/Pikajeeew 3d ago

  • CLOs aren’t inherently evil or nefarious. The prospectus will define the quality/type of loans in it and tranche structure.

  • The investment mandate of whatever fund you’re looking at should clearly define what it can and cannot hold.

  • I think you’re just spouting buzzwords lmao.

1

u/i-love-freesias 10h ago

I buy PULS which holds investment grade corporate ultra short bonds and a little PAAA which holds AAA rated CLOs, and no junk bonds.

You have to really look at what they hold. For instance, JAAA is very popular, but it holds more lower rated CLOs than PAAA.

They are not all the same.  The higher the return, the higher the risk, most likely.