Collateralised loan obligations are vehicles that pool loans to many junk-rated companies and fund themselves by issuing different tranches of debt of varying risk. This CLO debt has rallied so sharply that analysts expect the US market for new issues to spring back to life soon.

"It has been an astounding recovery up and down the capital structure," said Dan Smith, a senior managing director at the GSO unit of Blackstone which specialises in debt and has created many of these structures.

The lowest ranking slices of debt, the so-called first loss tranches, of many of these securities now trade at about 50 cents on the dollar, up from five cents on the dollar (emphasis mine).

[CLO] pieces graded AA, the third-highest level of investment grade, rose to 47 cents on the dollar from 23 cents in the past month, Morgan Stanley analysts led by Vishwanath Tirupattur wrote in a June 5 report. Securities ranked A have gained 13 cents to 23 cents since the end of last month, the report said.