Investing Ideas

Why CLOs stand out in today's fixed income environment

Floating-rate structures, strong historical performance, and built-in protections are pushing CLO tranches to the forefront as investors navigate inflation risks and rate uncertainty.

By: Brian Drainville Michelle Liu

Updated: 3/10/2026

Key Takeaways

The multiple debt tranches of CLOs (collateralized debt obligations) offer compelling yields relative to duration and can benefit from floating‑rate coupons that can help insulate investors from interest-rate volatility.
CLOs feature multiple layers of defense—seniority in the capital structure, diversification across hundreds of loans, and limits on lower‑quality holdings—that we believe have contributed to historically low default and impairment rates.
Over the past decade, CLO tranches across the quality spectrum have outperformed similarly rated corporate credit, demonstrating a consistent track record of competitive total returns.
While CLO ETFs have broadened access beyond institutional investors, outcomes still depend heavily on manager skill, tranche selection, and an informed understanding of liquidity, credit‑cycle, and structural risks.

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Why CLOs stand out in today's fixed income environment