Senior secured loans remained undisturbed by the volatility in rates, credit, and equity markets in March, returning 0.28% for the month and bringing year-to-date returns up to 1.45%.1 Similar to February, loan prices were stable during the month despite the broader market turbulence generated by whipsawing concerns over mounting trade tensions and rising interest rates. LIBOR surged higher throughout the month, benefitting loan investors’ coupon income and helping to reinforce demand for the asset class amid a general risk-off mentality.
New issue supply increased again during the month of March. While refinancing continues to make up the large majority of new issuance, the pace has slowed versus last year and overall issuance is down 27% year-to-date versus 2017. Issuance net of refinancings has actually increased by 17% versus the first three months of 2017. Meanwhile, loans saw solid demand in March, bolstered by reinvigorated inflows from retail. Technicals continue to be relatively balanced, contributing to a stable price environment in which the percentage of loans trading above par held steady at 72%.
The loan market continued to outperform other fixed income credit. The High Yield Bond Index returned -0.64% and the High Grade Bond Index returned 0.20%2 during the month, each more vulnerable than loans to rising rates. The 10 year Treasury gained 1.30% as yields declined by approximately 12 basis points to 2.74%. Loans’ lower yielding, higher quality “BB” (0.36%) and “B” (0.26%) ratings categories outperformed “CCC’s” (0.00%).3 The average price in the loan market was $98.29 at the end of March.4 At the current average price, senior secured loans are providing a 6.63% yield .
1 S&P/LSTA Leveraged Loan Index March 31, 2018
2 BAML High Grade Corporate Bond Index, BAML HY Master Index March 31, 2018
3 S&P/ LCD March 31, 2018
4 S&P LCD March 31, 2018
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