Senior secured loans returned 0.12% in November and 3.71% year-to-date1. Gains were buoyed by coupon income as prices retreated during the month amid a sell-off in high yield. The first half of the month was characterized by retail outflows and sector-specific selling that most heavily impacted consumer products, metals and mining, and transportation. Price erosion was then partly recovered towards month-end as credit markets rallied on tax reform progress and firming oil prices. Despite the spillover of weakness from high yield, loans displayed relative resilience; at November’s low point, the decline in loan prices was one-third as severe as the declines in high yield.
Gross supply in November swelled to $103.5 billion, however this was dominated by repricing activity. The modest $16.2 billion of net new supply in November declined sequentially, but was met by lighter overall inflows into the asset class. While CLO demand remained robust, retail funds reported a $2.7 billion outflow. During the quarter, the percentage of loans trading above par declined to 66.6%.
Loans outperformed other fixed income credit markets in November for the second consecutive month, with the High Yield Bond Index returning -0.27% and the High Grade Bond Index returning -0.14%2. The 10 year Treasury fell 0.31% as yields rose 3 basis points to 2.41%. Loans’ lower yielding, higher quality “BB” (0.17%) and “B ” (0.14%) ratings categories outperformed “CCC’s” (0.03%)3. The average price in the loan market was $97.65 at the end of November4. At the current average price, senior secured loans are providing a 6.26% yield5.
1 S&P/LSTA Leveraged Loan Index Nov. 30, 2017
2 BAML High Grade Corporate Bond Index, BAML HY Master Index Nov. 30, 2017
3 S&P/ LCD Nov. 30, 2017
4 S&P LCD Nov. 30, 2017
5 S&P LCD and Invesco as of Nov. 30, 2017
Click Download PDF to read the full article