BOJ report “CLO” price drop risk pointed out October 24 21:18
Investment in financial products called CLO, which are made by collecting loans from American companies among Japanese financial institutions, is increasing. The BOJ has compiled a report that it is most likely to invest in highly rated products at the moment, but there is a risk that prices will fall by up to 30% if the US economy deteriorates.
The Bank of Japan released a report released on the 24th, and summarized the results of a survey on a financial product called CLO, which was created mainly by collecting corporate loans in the United States.
CLOs are mainly loans from companies with low creditworthiness. As the yields are high due to the risk, investment by Japanese financial institutions and others seeking an advantageous investment destination is increasing as the low interest rate is prolonged.
Last year's Japanese financial institutions invested in CLOs in the amount of 1,270 billion yen, accounting for approximately 15% of global investment in Japan.
Almost all of the products we invest in are AAA with the highest rating, and the BOJ analyzes that the principal is protected by collateral.
However, he pointed out that, if an economic crisis similar to the Lehman shock occurred, prices could drop by 20-30% depending on the product.
Some CLOs are worried that Japanese financial institutions hold large amounts of financial instruments similar to those created by collecting mortgages that triggered the Lehman Shock 11 years ago.
The BOJ says, “The product is very robust now, but we need to be careful about the risk of a price drop when the economy suddenly changes.”