Cloud 9fin Tranche Talk — Looking ahead to 2026 with BofA's Pratik Gupta
Dec 19, 2025
Pratik Gupta, CLO and RMBS researcher at Bank of America, shares his insights on the financial landscape as 2025 approaches. He argues that CLOs are poised to thrive in a rate-cutting environment and explores the dynamic demand from US and Japanese banks. Pratik addresses concerns surrounding private credit CLOs, revealing that many perform well despite media fears. He emphasizes the importance of cautious portfolio construction and highlights promising trading strategies for CLO managers aiming for differentiation in a competitive market.
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Regulatory Change Will Boost Bank Lending
- Removing the 2013 leveraged lending guidelines lets banks compete more with private credit and should boost BSL loan issuance.
- Pratik Gupta expects stronger LBO and M&A-driven loan supply into 2026 as banks regain lending flexibility.
CLOs Are Both Buy And Sell Trades
- CLOs can be the best asset class to buy or sell depending on the rate cycle and technical flows.
- Pratik Gupta expects modest AAA spread widening as rate-cut expectations and ETF outflows drive rotational selling.
Banks Remain Core CLO AAA Buyers
- US and Japanese banks remain the core AAA buyer base because they prefer floating-rate assets.
- Rising JGB yields don't materially reduce Japanese demand since CLOs still offer hedged floating-rate relative value.