Risky and complex US loan wagers are red hot in low-yield Asia

NEW YORK (May 19): Asia’s yield-hungry investors have a lot riding on the financial engineers of Wall Street.

Faced with near record-low interest rates at home, money managers in Korea, Japan and China have been piling into complex and increasingly risky structured loan products in America. Their investments in collateralized loan obligations -- including the high-yield “equity’’ tranches most exposed to defaults -- have helped drive a doubling of issuance in 2017.

The bets have performed well so far. But some observers worry that Asian buyers are overlooking risks. Headwinds in the retail and energy sectors have raised the specter of defaults, while Moody’s Investors Service has stopped evaluating one type of CLO product amid concern that buyers will end up holding less creditworthy positions than they anticipated.

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