Moody's Comments on the Impact of the Fed Rate Cut on US Securitizations

"The Fed’s further rate cut to counter COVID-19 yesterday is credit positive for many US structured finance sectors, such as mortgage-backed securities and consumer asset-backed securities, because it will increase debt affordability for borrowers and support liquidity and asset prices, among other benefits. For collateralized loan obligations, although lower short-term rates will decrease excess spread, a credit negative, lower rates will also cut leveraged loan borrowers’ payment obligations and revive dormant Libor floor benefits in CLO weighted average spread, both credit positives. The extent of the rate cut’s credit effects will depend on the length and severity of the coronavirus outbreak.”
- Moody's Managing Director Jian Hu.