Japanese banks have been among the biggest buyers of collateralized loan obligations, making the cost of swapping yen into dollars a key driver of both the price and pace of issuance. Shifts in Japanese regulation and monetary policy have reshaped who the key buyers are and how aggressively they step in or pull back as funding costs change, rippling through to the financing of heavily indebted American companies. Changes in Japanese prudential regulation, BOJ monetary policy, or balance-sheet capacity reshape how forcefully funding shocks transmit to the pricing of new US CLO deals.
- Japanese banks' buying of US Collateralized Loan Obligations (CLOs) is significantly influenced by the yen-dollar cross-currency basis, which is in turn affected by Japanese regulatory and monetary policy shifts.
- Recent changes in Japanese securitization rules and the Bank of Japan's policy normalization have altered the dynamics of CLO demand, making it more sensitive to funding costs and impacting the financing of heavily indebted US companies.
- The study highlights that decisions made in Japan have a substantial, albeit often overlooked, impact on the pricing and issuance of US CLO deals and subsequently on US corporate credit.
Topics: Asset types, Jurisdictions, Market cycles macro sensitivity, Financial instruments, Established hubs, Interest rate sensitivity
Tags: #collateralizedloanobligations #clo #japanesebanks #crosscurrencybasis #yendollarfunding #usclomarket #bankofjapan #monetarypolicy #securitizationrules #leveragedloans