Monthly US Loan Market Update August 2018

Aug 14, 2018 | Invesco Fixed Income

Senior secured loans delivered positive returns of 0.74% in July, bringing year-to-date returns up to 2.91%.1 A good start to earnings season and a shortage of new issue supply – typical for the month of July – both served as price tailwinds for loans. This combination of fundamental and technical buoyancy drove the best monthly returns since January and caused the percentage of loans trading above par to recover from 19.6% in June to 47.9%.

Following a very busy June for primary supply, the new issue calendar slowed markedly in July, historically the least active month of the year. For the first time since March 2016, there was no repricing activity during the month, a continuation of the recent slowdown in repricing efforts. Meanwhile, demand for the asset class remained steady, with modest retail inflows and solid CLO creation. This dynamic created a positive environment for secondary loan prices.

The improved environment for risk assets, driven by earnings and apparent progress on trade negotiations between the US and Europe, resulted in relatively strong performance in adjacent asset classes as well. The loan market underperformed the High Yield Bond Index, which returned 1.14%, and the High Grade Bond Index, which returned 0.75%.2 The 10 year Treasury returned -0.71%, as yields rose 10 basis points to 2.96%. Loans’ lower yielding, higher quality “BB” (0.72%) and “B” (0.70%) ratings categories lagged “CCCs” (1.31%).3 The average price in the loan market was $98.42 at the end of July.4 At the current average price, senior secured loans are providing a 6.93% yield inclusive of the forward LIBOR curve.5

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

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