US Senior Loan Market: 2017 Review & 2018 Outlook

Entering 2018, strong fundamental credit conditions and attractive yields relative to other credit products warrant an allocation to senior secured loans.   

Jan 23, 2018 | Invesco Fixed Income

Improving economic growth together with healthy borrower balance sheets and rising short term interest rates form a favorable backdrop for senior secured loans. Due to their defensive position in the capital structure and short duration, loans can uniquely provide strong current income while exhibiting relatively low volatility. Historically speaking, no other asset class offers investors a similar blend of secured credit exposure and insulation from interest rate risk.

These are appealing features heading into 2018 given an uncommonly long economic cycle in which growth remains supportive and expectations of further interest rate normalization/tightening remain high.

Our 2018 return forecast is the outcome we believe to be most probable for the loan market; however we acknowledge that key variables could cause actual performance to differ from our base case, either positively or negatively. Important swing factors include:
• Central bank policy
• Geopolitical shocks
• Impact of secular shifts on default rate
• Contagion from troubled sectors

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