Monthly US Loan Market Update September 2018

Sep 13, 2018 | Invesco Fixed Income

Senior secured loans delivered positive returns of 0.40% in August, raising year-to-date returns to 3.32%.1 Credit fundamentals remained supportive as earnings season depicted a generally strong profit environment for issuers. Meanwhile, issuance was light in August – typical for the end of summer lull – but created enough supply overhang to soften the technical environment. Mild loan price declines during the month were more than offset by coupon income. The percentage of loans trading above par held steady at 47.8%.

Following a very slow month of July for primary supply, the new issue calendar picked up modestly in early August before effectively shutting down in the final two weeks. Issuance was balanced between acquisition financings and refinancing activity. Demand for the asset class remained steady as has been the case for several months, with continued retail inflows and new CLO creations. However,secondary loans prices drifted modestly lower as lenders awaited an expected deluge of new issuance in September.

The loan market underperformed other fixed income asset classes during the month. The High Yield Bond Index returned 0.72%, the High Grade Bond Index returned 0.54%,2 and the 10 year Treasury returned 1.13%, as yields declined 10 basis points to 2.86%. Loans’ lower yielding, higher quality “BB” (0.29% and “B” (0.47%) ratings categories lagged “CCCs” (0.82%).3 The average price in the loan market was $98.36 at the end of August.3 At the current average price, senior secured loans are providing a 6.70% yield inclusive of the forward LIBOR curve.4

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

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