"U.S. insurer exposure to CLOs has reached its highest level in recent years. CLOs are mainly floating rate, and they have offered an attractive yield alternative to other more traditional asset types, such as investment grade corporate bonds. Spreads on new-issue AAA-rated CLOs, which are the most commonly held rated tranches by U.S. insurers, were about 136 basis points (bps) over three-month London Interbank Offered Rate (LIBOR) as of 4Q 2020 compared to 134 bps a year prior. However, spreads on AAA-rated CLOs have narrowed since year-end 2020 and were 116 bps as of 2Q 2021. Spreads tend to decrease with a presumed decrease in risk and may also move based on other factors such as supply and demand. With the increase in inflation, along with a move away from the Federal Reserve’s “easy money,” CLO debt has become even more attractive to investors, as there is a current demand by investors for floating-rate debt, and yields will increase with rising rates anticipated in the future."