Monthly US Loan Market Update - October 2018

Oct 10, 2018 | Invesco Fixed Income

Senior secured loans delivered solid returns of 0.69% in September, improving year-to-date returns to 4.03%.1 Gains during the month were fueled by a mix of upward price movement and steady coupon income. September’s buoyant price environment was supported by sustained fundamental credit strength and a dearth of new supply relative to demand and expectations. This combination of fundamental and technical strength pushed the percentage of loans trading above par up to 64.9%. 

Following the end of summer lull in new deal activity, September saw several multi-billion-dollar loan transactions come to market. However, even with the long-awaited Refinitiv, Envision, and AkzoNobel mega buyout deals, overall supply levels underperformed expectations as new issuance outside of these transactions was limited. As many market participants entered the month carrying high cash balances in anticipation of significant supply, new issuance as well as secondary loan prices finished September extremely well bid.

The loan market outperformed other fixed income asset classes during the month. The High Yield Bond Index returned 0.55%, the High Grade Bond Index returned -0.35%,2 and the 10 year Treasury returned -1.51%, as yields increased 20 basis points to 3.06%. Loans’ lower yielding, higher quality “BB” (0.52%) and “B” (0.78%) ratings categories lagged “CCCs” (1.31%).3 The average price in the loan market was $98.65 at the end of September.3 At the current average price, senior secured loans are providing a 6.96% yield inclusive of the forward LIBOR curve.4

1 S&P/LSTA Leveraged Loan Index as of Sept. 30, 2018
2 BAML High Grade Corporate Bond Index, BAML HY Master Index as of Sept. 30, 2018
3 S&P LCD as of Sept. 30, 2018
4 S&P LCD and Invesco as of Sept. 30, 2018

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