Monthly US Loan Market Update - March 2019

Mar 8, 2019 | Invesco Fixed Income

The senior secured loan market delivered another month of strong returns, gaining 1.59% in February and bringing year-to-date returns to 4.18%.1 Loans have now fully retraced losses from December’s short-lived beta-driven selloff. At the end of February, the average loan bid price was $3.27 above December’s low point, having returned to a level last seen in late November.1 Loan market technicals have steadily improved in early 2019 due to a dearth of new issue supply, slowing retail outflows, and accelerating demand from new CLO issuance. This firmer technical dynamic has coincided with a greatly improved backdrop for risk assets stemming from a dovish pivot by global central banks, signs of progress in US-China trade negotiations, and a better-than-expected earnings season. As fears of overly restrictive monetary policy and disruptive trade tensions have receded, the strong borrower fundamentals underpinning the loan asset class have come back into focus.

Despite the upward price trajectory in the last two months, the percentage of loans trading above par remained near historic lows at just 5.8% at the end of February. Roughly 68% of the market was trading within two points of par by the end of the month, compared with just 10% at the end of December.1 As the selloff at the end of 2018 was driven more by technical factors than by fundamental credit concerns, the larger, more liquid names underperformed the broad market during that period. This dynamic has reversed in early 2019, causing the largest 100 loans to outperform the broader loan market by 42 basis points in February and 139 basis points year-to-date.2 From a quality perspective, “BBs” (1.44%) were outperformed by “Bs” (1.72%) and “C CCs” (1.73%) during the month.2 The average price in the loan market was $97.35 at the end of February.3 At the current average price, senior secured loans are providing a 7.06% yield inclusive of the forward LIBOR curve.3

1 S&P/LSTA Leveraged Loan Index as of Feb. 28, 2019.
2 S&P LCD as of Feb. 28, 2019.
3 S&P LCD and Invesco as of Feb. 28, 2019.

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