In a market defined by elevated rates and persistent uncertainty, investors are rethinking how to generate income while managing risk. AAA Collateralized Loan Obligations (CLOs) offer a rare combination of high-quality credit, floating-rate income, and structural resilience—making them a compelling alternative to traditional fixed income.
1. Attractive Income
AAA CLOs consistently deliver higher yields than other high-quality fixed income assets, including U.S. aggregate bonds and short-term Treasuries.*
2. Strong Risk-Adjusted Return Potential
AAA CLOs have historically outperformed traditional bond indices with superior risk-adjusted returns and low drawdowns. Their performance history reflects a balanced profile—delivering returns while managing volatility effectively. *
3. Low Risk
Positioned at the top of the capital stack, AAA CLO tranches benefit from short duration and minimal credit risk. Over more than 30 years, these tranches have recorded zero defaults, underscoring their resilience even through market stress. Their low correlation with traditional fixed income can improve overall portfolio quality and risk-adjusted returns.
*Source: PGIM using data from JP Morgan and Bloomberg as of 6/30/2025. U.S. Agg is represented by the BBG U.S. Aggregate Bond Index; ST Treasuries is represented by the BBG U.S. Treasury Bill 1-3 Month Index; AAA CLOs is represented by the JPM CLOIE Index. Past performance is not a guarantee or a reliable indicator of future results.
The views expressed herein are those of PGIM investment professionals at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute an offer to sell or a solicitation to buy any security.
Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information, nor do we make any express or implied warranties or representations as to the completeness or accuracy. Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated, based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
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