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Rates risk is not something we concern ourselves with too much in the European ABS market, so normally news of inverted yield curves and 30-year US Treasury yields dropping below 2% would largely wash over us. This is because pretty much all ABS bonds are floating rate, so there is no duration. Or is there?

As we wrote on Friday, one of our biggest takeaways from last week’s Global ABS conference was the growing number of prospective new issuers in the market.

Deoleo is a Spanish olive oil company that people will know from its brands like Bertolli. It’s long been considered to be one of the “idiosyncratic” stories in the European leverage loan market. The deal has an 85m revolver, a 55m second lien tranche and widely traded 460m senior secured tranche.

Yesterday the Office for National Statistics released strong data on the UK labour market, which was music to the ears of UK RMBS investors. The headline unemployment rate stands at 4.0%, roughly unchanged for the last six months and at the lowest level seen in the last 45 years. There are an estimated 32.6 million people employed, 444k more than a year earlier, and more importantly average weekly earnings grew by 3.4% (the highest for over 10 years and 1.2% in real terms).

January has been a very quiet month for the European CLO market, with spreads tightening but still relatively wide. While we know there are around 30 different CLO warehouses open – some of which are for deals that couldn’t be priced in December and were postponed – the pipeline is struggling to materialise. So far only CSAM has managed to price a new deal, and in the process showed how difficult it has become to make the arbitrage to work for equity investors (see our recent blog CLO Arbitrage Worst Since 2013).

CLO investors like to talk a lot about arbitrage, or rather the lack of it. Arbitrage is what is left of the monthly interest on the leverage loans in the CLO pool once the liabilities have been paid, and it is the main reason why a growing number of investors have been buying CLO equity in the last 18 months.