Monthly US Loan Market Update - February 2018

Feb 14, 2018 | Invesco Fixed Income

Senior secured loans began the year on a strong note, returning 0.96% in January1. Loan prices were a beneficiary of the positive macro backdrop and rising interest rate expectations. Unlike much of 2017 when coupon income primarily drove loan returns, price growth was a more significant component of total return in January. From a sector standpoint, retail and metals & mining delivered the largest gains.

Gross supply declined in January to $49.3 billion, the quietest month since last July. The majority of issuance continued to be repricing and refinancing activity. Meanwhile, solid overall demand continued to be driven by CLO issuance, the forward pipeline for which remains well stocked. Retail recorded its first monthly inflow since July. This technical dynamic, in addition to the fundamental market tailwinds, pushed the percentage of loans trading above par up to 78%.

The loan market continued its streak of outperformance versus other fixed income asset classes. The High Yield Bond Index returned 0.64% and the High Grade Bond Index returned –0.92%2, each exhibiting sensitivity to rising rates. The 10 year Treasury declined –2.45% as yields increased by 30 basis points to 2.71%. Loans’ lower yielding, higher quality “BB” (0.74%) and “B” (1.02%) ratings categories underperformed “CCC’s” (2.30%)3. The average price in the loan market was $98.69 at the end of January4. At the current average price, senior secured loans are providing a 6.37% yield5.

1 S&P/LSTA Leveraged Loan Index January 31, 2018
2 BAML High Grade Corporate Bond Index, BAML HY Master Index January 31, 2018
3 S&P LCD January 31, 2018
4 S&P LCD January 31, 2018
5 S&P LCD and Invesco as of January 31, 2018


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