Monthly US Loan Market Update - April 2019

Apr 10, 2019 | Invesco Fixed Income

Risk sentiment was generally positive in March as the US Federal Reserve’s (Fed) updated guidance showed a longer anticipated pause in rate increases. The Fed’s growing caution about overtightening monetary policy against gradually building global growth headwinds has been perceived as supportive of a lengthier credit cycle. However, with interest rate expectations resetting lower, retail investors continued to steadily withdraw funds from the loan market in favor of fixed rate credit. The withdrawals, along with modest CLO issuance, contributed to a loose technical dynamic, and loan prices drifted lower as a result. The senior secured loan market returned -0.17% in March, bringing year-to-date returns to 4.00%.1 Despite the mild decline in March, loans delivered their best quarterly performance in 9 years.1

The percentage of loans trading above par remained near historic lows at just 3.36% at the end of March, with another 32.25% of loans trading within one point of par.2 Similar to the technical driven selloff at the end of 2018, the larger, more liquid names experienced heavier selling pressure causing the largest 100 loans to underperform the broader loan market by 31 basis points in March.3 From a quality perspective, “BBs” (-0.28%) and “Bs” (-0.27%) underperformed “CCCs” (0.74%) during the month.3 The average price in the loan market was $96.69 at the end of March.4 At the current average price, senior secured loans are providing a 7.22% yield inclusive of the forward LIBOR curve.4

1 S&P/LSTA Leveraged Loan Index as of March 31, 2019.
2 JP Morgan as of March 31, 2019.
3 S&P LCD as of March 31, 2019.
4 S&P LCD and Invesco as of March 31, 2019.

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