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AAA CLO funds returned about 5% while bonds made almost nothing

Treasury yields jumped in the third quarter of 2026, a broad U.S. bond fund lost 3.5%, and the largest AAA CLO funds still gained.

ETF.net Research

Updated Nov 9, 2026, 11:06 AM ET

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Key takeaways

Largest AAA CLO funds each returned 4.8% over twelve months while bonds made almost nothing.
In the third quarter a broad bond fund lost 3.5% while AAA CLO funds gained.
CLO interest resets with short-term rates, so prices need not fall when yields rise.
The Janus Henderson AAA CLO ETF price barely changed, and the return was the income.
These funds were a substitute for bonds that lose money when yields jump, not stocks.

Janus Henderson AAA CLO ETF JAAA and PGIM AAA CLO ETF PAAA each gained 1.2% in the third quarter of 2026. The iShares Core U.S. Aggregate Bond ETF AGG lost 3.5% in that quarter.

AGG lost 3.5% while AAA CLO funds gained

Total return, third quarter 2026 (June 30 to Sept. 30)

PAAA+1.2%
JAAA+1.2%
AGG−3.5%

JAAA and PAAA each returned about 1.2%.

Over the 12 months through Nov. 6, 2026, each returned 4.8%. AGG returned 0.3%.

A collateralized loan obligation, or CLO, is a package of corporate loans sold in slices by credit rating. JAAA and PAAA are the largest CLO funds by assets, and they own the AAA slices, the ones with the highest credit rating.

The interest resets with short-term rates. When those rates rise, the income rises with them, so the share price does not have to fall the way an ordinary bond's price does when its coupon is fixed and yields rise.

When short-term rates fall, the income falls with them.

In the third quarter the two-year Treasury yield rose from 4.14% on June 30 to 4.88% on Sept. 30. The 10-year yield rose from 4.44% to 5.29%.

On Sept. 16 the Federal Open Market Committee of the U.S. Federal Reserve raised its target range for the federal funds rate by a quarter of a percentage point, to 3.75% to 4%.

"Inflation remains elevated," the Committee said. "Today's policy action will support a timelier return to the Committee's 2 percent goal."

By Nov. 6 the two-year yield had fallen back to 4.51%, and the 10-year to 4.86%.

Two- and 10-year yields jumped in the third quarter, then eased

U.S. Treasury par yield curve at June 30, Sept. 30 and Nov. 6, 2026

Jun 30Nov 6

2-year · 4.5%
10-year · 4.9%

Both tenors finished Nov. 6 above their June 30 levels.

In its third-quarter commentary, Janus Henderson said AAA CLOs posted a positive return, outperforming Treasuries and corporate bonds, which weakened as yields rose sharply.

JAAA shares closed June 30 at $50.49 and Sept. 30 at $50.47. Over the 12 months they stayed between $50.32 and $50.82 and closed Nov. 6 at $50.52. The return was the income.

State Street SPDR S&P 500 ETF SPY returned 10.9% over those 12 months. These funds were not a substitute for the stock market. They were a substitute for the bonds that lose money when yields jump.

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