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Phantom Premium - Part 1: Why AAA CLO spreads reflect liquidity perception rather than credit risk
10 days ago
AAA CLO spreads have carried a persistent spread premium to corporate IG since the GFC. The standard explanation for this premium is familiar: credit risk, complexity, and a narrower buyer base. But recent evidence challenges that story. If the premium is not primarily credit, then what is the market pricing, and what would make it converge?
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