Monthly US Loan Market Update - October 2017

Oct 12, 2017 | Invesco Fixed Income

Senior secured loans returned 0.39% in September and 2.97% year-to-date.1 Loans prices were steady during the month even as net new loan issuance picked up. Broadly speaking, risk assets rallied on firming macroeconomic sentiment, an improving energy price environment, and rising optimism about prospects for tax relief. With loan prices steady, coupon income drove solid returns for the asset class.1

Following a typical summer slowdown in August, new issuance perked up after Labor Day due to M&A and dividend financings. Gross supply in September of just $52 billion was below 2017’s monthly average of $81.3 billion, however this was due to quieter repricing activity. The $22 billion of net new supply in September was an increase from August levels and in-line with 2017’s monthly average. Meanwhile, retail funds experienced a second consecutive small outflow but new CLO creation remained in-line with this year’s monthly average. The percentage of loans trading above par rose slightly to 64%.2

Loans underperformed high yield bonds, with the High Yield Bond Index returning 0.90%, but outperformed the more rate sensitive High Grade Bond Index, which declined -0.23%.The 10-year Treasury fell 1.61% as  yields rose nearly 22 basis points to 2.33%. Loans’ lower yielding, higher quality “BB” (0.34%) and “B” (0.41%) ratings categories lagged the performance of “CCC’s” (0.83%).The average price in the loan market was $97.96 at the end of September.1 At the current average price, senior secured loans are providing a 5.93% yield.1    

 

1 S&P LCD (Leveraged Commentary and Data) as of Sept. 30, 2017; Total returns and other data stated are for the S&P  LSTA Leveraged Loan Index.
2 J.P. Morgan as of Sept. 30, 2017.
3 HY Bonds: BAML HY Master Index, High Grade Bonds: BAML High Grade Corp; Loans: S&P LSTA Leveraged Loan Index,  data as of Sept. 30, 2017. Returns stated are total returns.

 

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