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US CLOs May See Record Year as Investors Seek interest-Rate Hedge

(Reuters) The US Collateralized Loan Obligation (CLO) market may be heading for a record year in 2018 as investors seek floating-rate assets as a hedge to rising interest rates. More than US$117bn of US CLOs was raised in 2017, the second-largest year of issuance ever, on the back of increased investor appetite. With expectations for similar economic conditions this year, banks are optimistic for 2018 including Wells Fargo which is predicting a record US$125bn in issuance. Rising interest rates may push investors toward products that thrive in a rising-rate environment, including leveraged loans and CLOs, which pay investors a coupon plus the London interbank offered rate (Libor). JP Morgan in November said it is expecting four rate hikes in 2018.

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