Senior secured loans delivered solid, coupon-driven performance in April, returning 0.41% for the month and bringing year-to-date returns up to 1.87%.1 Secondary prices were essentially unchanged during April amid a shortage of new issue supply and steady market fundamentals. Broadly speaking, capital markets were again focused on rates as the yield on 10 year Treasuries breached the 3% mark near month end. While rising rates remain a concern for most fixed income assets, loans are insulated by their floating rate structure and, thus, have provided a low volatility haven within credit year-todate.
New issue supply decreased in April due to slowing refinancing activity and fewer event driven transactions. Year-to-date, net new issuance has increased by 7% while repricing and refinancing has decreased markedly by 34%, signaling a more balanced technical in the loan market. Meanwhile, loans continued to receive solid demand in April, including ongoing inflows from retail and robust CLO volume. The supportive technical and fundamental conditions contributed to a stable price environment in which the percentage of loans trading above par rose to 74%.
The loan market continued to perform well relative to other fixed income credit. The High Yield Bond Index returned 0.68% while the High Grade Bond Index returned -0.84%2 and the 10 year Treasury returned –1.37% as yields increased by approximately 21 basis points to 2.95%. Loans’ lower yielding, higher quality “BB” (0.41%) and “B ” (0.47%) ratings categories outperformed “CCC’s” (–0.04%).3 The average price in the loan market was $98.47 at the end of April.4 At the current average price, senior secured loans are providing a 6.81% yield inclusive of the forward LIBOR curve.5
1 S&P/LSTA Leveraged Loan Index April 30, 2018
2 BAML High Grade Corporate Bond Index, BAML HY Master Index April 30, 2018
3 S&P/ LCD April 30, 2018
4 S&P LCD April 30, 2018
5 S&P LCD and Invesco as of April 30, 2018
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