EP 02: Volatility, Tariffs, and the CLO Machine, A Global Look with Steve Baker

Show Notes

Hosted by Julie Miecamp, this episode of Industry Insights: Exclusive Interviews features a timely and wide-ranging conversation between Hugh Minch and Steve Baker, Global Head of CLO Primary at J.P. Morgan. From April’s tariff shocks to shifting investor dynamics, they break down what’s really happening in the CLO market and what might come next.

You’ll hear why Japanese investors have remained steady, how ETFs are adding both access and volatility, and where the opportunities are emerging across U.S. and European structures. Julie opens the episode with essential context, and Steve closes with a perspective built on 25 years of market experience.

If you’re navigating credit markets, this is the one to queue up.

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Hosted by: Julie Miecamp
Interview by: Hugh Minch
Guest: Steve Baker
Produced by: Tanya Hubbard

What is Industry Insights: Exclusive Interviews?

Go beyond the headlines with in-depth conversations featuring top industry leaders across the entire credit lifecycle. From CLOs and private credit to the broader financial landscape under the Octus umbrella, this series delivers expert perspectives, market-shaping insights, and exclusive analysis to keep you ahead of the curve.

Julie Miecamp: Welcome to Industry Insights: Exclusive Interviews. I'm Julie Miecamp. This show brings you candid, in-depth conversations with leaders across credit markets — from direct lending and private credit to high yield and structured finance. These aren't surface-level chats. Each episode is a real look at how market players think, work, and adapt.
Today's focus: CLOs — a part of the market that's felt the pressure from shifting trade policy, pricing uncertainty, and evolving investor behavior. With so much in flux, it's the kind of moment that calls for someone who's been through it before.
That’s where this week’s guest comes in. Steve Baker is the Global Head of CLO Primary at J.P. Morgan. With more than 25 years in the business across structuring, investing, and issuing, he’s one of the most experienced and level-headed voices in the space. Steve recently sat down with my colleague Hugh Minch for a wide-ranging conversation about the state of the CLO market, how investors are responding to volatility, and what might come next.
But before we jump into that discussion, I asked Hugh to join me for a few minutes to help frame the conversation and share why it matters now.
Julie Miecamp:
Welcome.
Hugh Minch:
Thank you so much for having me, Julie.
Julie Miecamp:
You've interviewed a lot of people in this space before. What made Steve Baker the right guest for this moment?
Hugh Minch:
To put this conversation into context — CLOs were having a record year for issuance in 2024. And in Q1, demand from investors was at a record high, judging by liability spreads. Then tariffs were announced in April, which really knocked the market off course. What I wanted from Steve was a perspective on investor demand as the market is recovering.
I first met Steve back when I lived in London about six years ago. He was head of European CLOs for JPMorgan at the time. Earlier this year, he got promoted to head the global team. JPMorgan, being either the largest or one of the largest arrangers in the space depending on when you're looking, gives him a fantastic perspective — and his work reaches all areas of the market.
Julie Miecamp:
Well, Steve seems to strike that balance between being pragmatic and optimistic — especially around market mechanics. What stood out to you when you spoke with him?
Hugh Minch:
You hit it on the head. There's no prize for being overly optimistic in a market like this. Ultimately, it's a globalized marketplace — in a world that’s potentially de-globalizing. That’s going to have second- and third-order effects not just for CLO managers but for other investors as well.
Steve’s able to talk to all those different parts of the market. He tells us where people’s heads are and what people are thinking.
Julie Miecamp:
We’ve all seen a lot of volatility this year — tariffs, widening spreads, investor hesitancy. What context does this episode give people who are watching from the sidelines — or even those in adjacent roles?
Hugh Minch:
I hope the episode gives people a global perspective on the CLO market. Steve was able to talk about how Japanese investors are approaching the asset class amid U.S.-Japan trade tensions. He also breaks down how the tariff impact differs between U.S. and European CLOs. Plus, he spoke to the growing influence of ETFs and how that’s shifting investor dynamics too.
Julie Miecamp:
So one last question before we cut into the interview. If someone’s only going to take away one key point from this conversation with Steve, what should it be?
Hugh Minch:
To go back to your point about optimism — Steve is very confident about continued strong demand for CLO products, both domestic and international. And honestly, since we had this conversation, that’s proven to be true. The asset class has held up. Issuance has returned. Spreads have started tightening. So there’s a lot to be confident about — even with the uncertainty.
Julie Miecamp:
Thank you so much, Hugh, for coming on.
Let’s get to it. Here is Hugh in conversation with Steve Baker, Global Head of CLO Primary at J.P. Morgan.

Hugh Minch:
Steve, welcome to the podcast. Thanks for sharing your expertise with us today.
Steve Baker:
Thanks, Hugh. I’m really glad to be here.
Hugh Minch:
At Octus, we’re monitoring several key trends in the CLO space this year — from the impact of tariffs on market activity and pricing, to the evolution of the investor base with new funds and structures entering the space. We’re also seeing new market entrants — managers, investors, even arrangers.
Let’s start with market activity. The U.S. and European primary markets have both reemerged from their April slumps. There’s even talk of liability spread tightening. Have CLOs come out of the woods post-tariffs? Or do you expect second- and third-order effects to ripple through the market over the coming months and years?
Steve Baker:
Thanks for the question. I think one thing we’ve learned this year is that it’s hard to predict what’s going to happen — even next week. Especially with tariffs. We’re recording this on a Tuesday, and just yesterday there was an announcement of a 90-day pause on U.S.-China tariffs. That had a big positive impact on equity markets.
But we also know new announcements are always around the corner. So we’re going to be living with this uncertainty for a while. That said, it feels like the magnitude of the uncertainty is decreasing.
CLO issuance likes stability. These are long lead-time deals — you need a warehouse, ramp assets, then start marketing, usually with the AAA tranche. You need stable conditions for that. Volatility doesn’t make it impossible, but it makes it harder.
We’ve had some curveballs this year. But recently, things are feeling more positive. Spreads have come in on the primary side. And primary spreads often follow secondary — investors will buy secondary paper if it’s cheaper. Once relative value shifts, primary activity picks back up. And that’s what we’re seeing now.
Hugh Minch:
How was your experience during April? How did demand from CLO investors shift during the volatility, and what kind of conversations were you having?
Steve Baker:
It’s a good question. After the Liberation Day announcements, I think the size of the tariffs really caught people off guard. And our market — like most — doesn’t like surprises.
That created uncertainty — especially about the second- and third-order impacts. How will tariffs affect the corporates in CLO portfolios? Will they feel pressure from decreased trade?
That kind of uncertainty causes markets to pause. Some investors need liquidity and might sell even their best assets. That happened during the LDI crisis in the UK — CLOs were the most liquid, highest-priced asset, so people sold them.
Others may have used leverage and need to unwind. And then there’s ETFs — a newer part of the CLO market. We saw ETF outflows during that period. That added to the selling pressure.
So you had spreads widening, primary investors pulling back, and overall pricing slowing down. But you still saw some deals get done — particularly ones that had spread commitments made before the volatility.
Steve Baker (continued):
You ended up with this wide dispersion in pricing. Some deals priced tighter because of locked-in commitments. Others priced 20 basis points wider. That kind of fragmentation impacts secondary trading too — and for a while, the secondary market became more attractive. You could see ETFs selling if you checked the flows on Bloomberg.
So yeah, the Liberation Day tariffs had a pretty big impact. It caused a general slowdown as everyone tried to digest what it meant — for CLO warehouses, for the loan market, for forward pipelines.
In the U.S., deals were still pricing, albeit more cautiously. In Europe, the market paused more significantly for two or three weeks. But it wasn’t a full shutdown — at least not in the U.S. And as things calmed, activity started picking up again.
Hugh Minch:
Let’s talk about your pipeline. How was it impacted by the tariffs and the resulting volatility?
Steve Baker:
Yeah, great question. The pipeline definitely slowed. Some resets and refis got put on hold — particularly where the economics no longer made sense due to widening spreads.
That said, not every reset paused. Some deals from the wides of 2023 were coming out of their non-call period, and they still made economic sense to proceed with.
But overall, resets do a lot for the market. They recycle paper. If an investor gets repaid, they’ve got cash to redeploy — which fuels demand for new deals. When refis slow down, that virtuous cycle gets disrupted. And that feeds on itself in both directions — when the market’s strong, resets drive more issuance. When it’s volatile, it stalls.
Now, if you were far along in ramping — especially when loans were trading at par or above — and then liabilities widen, it gets hard to make the equity work. And in the broadly syndicated CLO market, equity returns are key. If they don’t pencil out, the deal doesn’t happen.
Some managers paused. Warehouses typically have a year and a half or more, so you can wait it out.
But if you were early in ramping, or not ramped at all, it could be a good window. Loans were cheaper, and you could get something done — even with wider liabilities. That’s where you see “print and sprint” deals — opportunistically pricing now and ramping afterward.
There were a few quasi print-and-sprints done. But this time, loans didn’t sell off that much. So it wasn’t a fantastic setup. Still, some deals went through, and others found ways to make it work.
Hugh Minch:
And what about equity? At Octus, we tracked very little secondary trading of CLO equity in April — at least on BWIC lists. It’s started coming back as spreads tighten. But is equity harder to place in this environment?
Steve Baker:
Yeah, this is one of those evergreen market jokes: “The arb is tough.” People have been saying that for 25 years. It’s almost always the case — equity returns are rarely as high as anyone would like them to be. But they’re often still good enough.
In volatile periods, equity sellers are usually not forced sellers. Most hold unless they’ve got a great reason to rotate. So I wasn’t surprised to see limited trading.
Also, some of the best equity deals get done when liabilities are widest. Why? Because you’re buying loans at a discount — and CLOs come with optionality. You can refi or reset 1–2 years in and improve the economics. You might flush par, re-lever, and boost returns.
Now, that optionality is rarely priced in — partly because of uncertainty (will you get to refi?), and partly because no one’s figured out how to model it properly. It’s a bit of guesswork.
But there’s definitely value in that refi/reset path. The market tends to underprice it.
Hugh Minch:
Let’s move to ETFs. These are relatively new but increasingly influential. Do you think the existence of CLO ETFs increases volatility in the market?
Steve Baker:
Yeah, I do — at least in certain conditions.
For years, those of us in CLOs would ask: “Why aren’t there more buyers?” The product has historically outperformed — especially the investment-grade tranches like AAAs. They’ve had almost zero defaults and offer strong risk-adjusted returns compared to similarly rated corporate debt.
But complexity, lack of accessibility, and modeling challenges kept new investors out — especially retail.
ETFs have started to change that. They’ve opened the door to broader participation. Most buyers are still institutional, but there’s retail interest too.
Anecdotally, I’ve heard from people at JPMorgan and elsewhere — not in CLOs — who are seeing the returns and saying, “Wait, this is actually a great product.” And they’re right.
So yes, ETFs have helped compress spreads over the past 18 months. But during volatility, they can also introduce more selling pressure. We saw some of that after Liberation Day. Not massive, but noticeable.
And when the market softens, buyers retreat. So those ETF outflows can move spreads — even if the volumes aren’t huge.
Hugh Minch:
So ETFs are a new buyer. U.S. insurance firms have increased their allocations. Are there investor profiles that should be in CLOs but aren’t?
Steve Baker:
Definitely. European insurance companies, for one. They’re largely absent, except for a few large ones with internal capital models. Solvency II makes it hard for them to participate, and I’m surprised that hasn’t been fixed.
Meanwhile, U.S. insurers have been big buyers — including of European CLOs during LDI dislocations.
There are also opportunities on the fund side. Managers raise retention or captive equity funds — single-manager vehicles. There are also third-party equity funds.
But I still hear from managers how hard it is to raise those funds — especially compared to private credit, which continues to attract a lot of capital.
That’s surprising to me. CLOs are effectively investing in the same loans — just more liquid and rated. Yet they don’t get the same fundraising momentum. There’s a lot of untapped opportunity there.
Hugh Minch:
You mentioned U.S. and European CLOs. I’ve been talking to some European CLO managers who are hoping capital will shift from the U.S. to Europe post-tariffs. Are you seeing any evidence of that?
Steve Baker:
Not really, to be honest.
There are definitely more deals happening in the U.S. right now. Europe has picked up, especially in the last few weeks, but it's still playing catch-up. I wouldn’t say we’re seeing a mass migration of capital from the U.S. to Europe.
That said, European CLOs have their strengths. I’m biased — I ran the European business for six years before becoming global head. But structurally, European deals typically have higher subordination and dual ratings on every tranche.
There’s also usually a pickup when you translate pricing back into dollars — maybe around 20 basis points today. Some U.S. investors — the more sophisticated and larger ones — are definitely taking advantage of that.
And I’ve heard from some European equity investors that they prefer their home market. They think it’s a little more inefficient, which creates more opportunities. But it’s not like we’re seeing a flood of U.S. capital into Europe right now.
Hugh Minch:
If tariffs become the new normal and international trade slows, do you expect U.S. or European CLOs to be more affected?
Steve Baker:
Good question.
You could argue the U.S. would feel the direct impact more, since the tariffs are originating here. In Europe, the effect is more second-hand — it’s mostly about how trade with the U.S. is affected, not necessarily global trade as a whole.
So I do think Europe may be relatively less impacted. This could be a moment where Europe shines a bit brighter — especially given that the U.S. has dominated economically in recent years.
Look at GDP growth per capita, for example — the U.S. has been strong. But in Europe, there’s now a renewed focus on spending. Germany, in particular, is investing in rearmament and infrastructure. That’s supportive for the broader economy and credit creation.
But, to be clear, there are still a lot of chapters left to play out. Tariff policy can change quickly, as we’ve seen. These suspensions are only temporary. People are hoping they’ll become permanent, but we don’t know yet.
And yeah, the U.K. struck a deal with the U.S., but depending on who you ask, it’s not clear if that’s a great deal or not. There’s still a lot of uncertainty. That said, the temperature around tariffs has cooled — and that’s positive.
Hugh Minch:
Let’s talk about Japan — another big player in the CLO market. How have Japanese investors responded to recent trade policy shifts?
Steve Baker:
They’ve held up really well.
There’s still strong interest. The fundamentals that brought Japanese investors into the space haven’t changed — exposure to floating-rate paper, strong historical performance, familiarity with the asset class. They’ve spent years building internal expertise on CLOs.
Now they can buy at wider spreads, which makes things even more attractive for them.
And I’ll say this — in periods of volatility, managers especially appreciate the consistency of Japanese investors. They’re not just fair-weather buyers. They stay engaged.
I’m actually heading to Tokyo next week, and I know of at least ten other managers who are going to be there doing meetings. So it’s definitely an active channel.
Where things get tricky is determining the clearing level. Everyone agrees spreads are wider than they were a month ago. But what’s the right level?
You have to look at how the equity returns stack up. If they don’t meet certain thresholds, you can’t price the deal — unless the AAAs are priced attractively enough.
Japanese investors generally don’t want to lead the market tighter. They’re happy to price at market — but then we all have to agree on what “market” is.
So there's some dancing going on. But that’s normal. After volatility, both sides usually settle on levels that work. And yes, deals are still pricing in Japan. There are active spread conversations happening.
Hugh Minch:
There have been a lot of different CLO structures over the years. Private credit CLOs are one example. What changes have you seen in CLO structures since you started? And how do you see them evolving?
Steve Baker:
One of the strengths of the CLO market is how well-established it is. It’s been around for over 30 years. That long track record gives investors confidence.
A lot of that is because the structures were designed conservatively from the start — both by issuers and rating agencies. There’s been some evolution, but it’s mostly been incremental.
After the financial crisis, we had the “2.0” reset. Things like structured finance baskets were removed. Tranching became more conservative. But the core deal structure remained.
Over time, we’ve seen more tranches issued across the capital stack — not just AAAs and BBBs like in the late ’90s, but now down to BB and equity.
We’ve also seen finer splits — like senior and junior BBBs. That helps cater to different risk preferences. The senior piece gets more protection and takes a lower spread; the junior takes more risk but gets paid more.
In Europe, bond buckets have always been part of the structure — up to 20% — because there weren’t Volcker restrictions. That adds diversification. In the U.S., bond buckets have become more common recently.
There’s also been language added around LMEs (liability management exercises) — clauses that let CLOs defend themselves if underlying loans get restructured or repriced.
Again, all of this is incremental. That stability is part of what keeps investors comfortable.
We’ve also seen more static deals lately. One manager in particular has specialized in them — in both the U.S. and Europe. I’m honestly surprised we don’t see more statics, since they cater to shorter-term investors and don’t change the portfolio over time.
And then you’ve got private credit CLOs, which have existed for decades but are gaining traction again. They allow banks to provide longer-term financing — 10 to 12 years — by getting the deals rated. That relies on shadow ratings or internal credit estimates.
It’s a different credit story, sure, but for investors who spend the time to understand it, it’s very compelling. It offers a spread pickup over broadly syndicated CLOs. And it uses the same underlying tech — so it’s not a radical departure.
Hugh Minch:
It’s interesting to see how CLO structures have evolved, but I’m also curious about the role of the arranger. Has that changed over the years too?
Steve Baker:
Yeah, for sure.
One thing that’s definitely changed is fees. They’ve come down over time. As the product became more established — and more commoditized — competition increased. More arrangers, more deals, more pressure on economics.
So it’s become more of a volume business. That favors firms with large platforms — teams that can handle structuring at scale, global sales coverage, investor relationships, and access to the loan markets for sourcing collateral.
Also, managers are doing more deals every year. So their expectations are higher — and they’re often building internal capital markets teams. Those teams are usually staffed by ex-arrangers who manage investor relationships on the manager’s side.
That changes the role for us a bit. We still build the deal — we structure it, we distribute it, we place it. But the manager is now more in the driver’s seat when it comes to direct investor relationships, especially in places like Japan where those relationships are deep and long-standing.
To use an analogy — we build the car. But the manager drives it.
And just like in car manufacturing, the more you do, the more you look for efficiencies. Where can we automate? Where can we outsource? What tech can we use? That evolution is constant on the arranger side.
Hugh Minch:
So the first half of this year has been pretty unpredictable. How confident do you feel making predictions for the second half of 2025?
Steve Baker:
Well, I’m always going to lean optimistic — no surprise given I’m on the arranger side.
But honestly, I think this market has a way of solving problems. On both the manager side and the arranger side, people want to get deals done. We’ve got business plans, teams to support, and execution to deliver.
Even in volatile environments, we’re not going to sit on our hands. We’re out there talking to new investors — globally — and telling the story of why this is a strong asset class.
That’s part of why issuance tends to surprise to the upside.
At the beginning of the year, people were forecasting U.S. issuance of $180 to $200 billion. During the worst of the volatility, that started to look tough. But now it’s feeling more achievable again.
One challenge is loan supply. Will there be enough loans to feed the CLO engine? That’s still TBD. M&A and LBO activity are slow, and we need more stability for those to pick up. Maybe we’ll get that in the second half.
Things definitely feel better now. But like I said at the start of this conversation — there’s still a lot of uncertainty.
Hugh Minch:
Final question for you: What’s something you wish you’d known at the start of your career? Whether about credit, this industry, or just navigating it all?
Steve Baker:
That’s a great one.
I’d say — stay the course. When you’re just starting out, it’s a lot of work. The learning curve is steep. But you build relationships — and for me, that’s everything. Getting to know the people you work with, forming that network. This is a community.
Once you’re in it, it’s a fun group. You see the same folks at conferences, events, on calls — you’re always talking to each other. That’s been one of the real upsides of being in this industry.
Also, keep an open mind. Try new things. I studied engineering in undergrad — I never thought I’d end up in securitization. I hadn’t even heard of it.
I went back to business school, learned a bit about finance, and then landed a job on an asset-backed securities team. And I realized — this is actually really interesting.
Moving around — living in different places, taking on new roles — that’s been hugely rewarding. Sure, the travel can be exhausting sometimes, but you meet new people, you learn.
So I’d tell my younger self: Stick with it. Try new things. And remember, the more you put in, the more you’ll get out.
Hugh Minch:
Steve Baker, Global Head of CLO Primary at J.P. Morgan. It’s been a very pivotal couple of months for the CLO asset class and a very unpredictable one. Thank you for taking the time to come on the podcast and share your views. I know this conversation will help our listeners navigate the market a little more confidently.
Steve Baker:
Thank you, Hugh. I really appreciate it. And thank you for the great questions. Happy to chat anytime.
Julie Miecamp (closing):
That was Steve Baker in conversation with Hugh Minch, a sharp and steady view from someone who has watched the market change, grow, and recalibrate over decades.
What struck me most is how calm and clear Steve remains, even when the market feels anything but. It’s easy to get swept up in headlines and volatility, but conversations like this help cut through the noise and bring things back into focus.
Thank you to Steve for sharing his insight, and to Hugh for asking the questions that needed to be asked.
And a special thank you to the team behind the scenes who make this show happen each week. If you found this conversation helpful, pass it on. These are the kinds of insights that deserve to be shared. Make sure you’re subscribed to Industry Insights: Exclusive Interviews wherever you listen.
I’m Julie Miecamp. Thanks for listening, and we’ll see you next time.