Risk of CLO Losses Keeps Japan’s Banking Regulator on Alert

Japan’s financial regulator is closely watching global credit markets for renewed signs of stress because there’s no guarantee that support measures will keep borrowers afloat during the pandemic, officials said, Bloomberg News reported. Efforts in the U.S. and elsewhere have so far staved off a potential implosion of securities like collateralized loan obligations, which are favored by yield-starved Japanese banks. Still, the Financial Services Agency remains concerned about risks including the possibility of downgrades to the highest-rated products, the officials said, asking not to be identified in accordance with its policy. Some Japanese lenders booked billions of dollars in paper losses on their holdings of CLOs -- packages of leveraged loans to highly indebted U.S. and European companies -- during last quarter’s market turmoil. Read more

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