We’re told that JP Morgan Chase eliminated about half the positions on its collateralized loan obligation desk this Wednesday.
The move comes after a remarkable rally in the CLO securities, with AA rated securities rising from 23 cents to 47 cents on the dollar and single A rated securities raising to 23 cents from just 10 cents on the dollar. The top-rated CLO tranches have rose to 77 cents on the dollar from 71 cents in May.
JP Morgan went very long in the CLO market at the end of last year, adding about $14 billion of CLO securities to its portfolio even as many investors were fleeing the market. It’s not clear whether JP Morgan sold into this rally or had exited the position earlier. In any case, the rumoured layoffs at JP Morgan’s desk at least suggests that the bank does not have plans to continue playing a large role in this market.
CLOs are debt products made from bundles or junk loans. Banks slice them into securities of varying risk and return. JP Morgan Chase did not respond to inquiries about the rumoured layoffs.