JPMorgan: Escalation of Iran conflict fuels cautious sentiment in CLO market

JPMorgan Chase predicts that as the conflict in Iran escalates, the spreads on mortgage-backed securities may widen and the issuance pace may slow down. The reason is that the flow of oil through the Strait of Hormuz is facing serious risks. If the conflict continues for more than three weeks, Brent crude oil prices could rise to $100-120 per barrel. JPMorgan Chase analysts Rishad Ahluwalia, Noelle Cooke, and Aram Lavan believe that in a "disruptive scenario," as the credit curve steepens, the performance of lower-rated tranches may lag behind the overall market, while AAA spreads will widen along with the market volatility.