Monthly European Loan Market Update - October 2019

Monthly insights and updates from the Invesco Fixed Income team

Oct 11, 2019 | Invesco Fixed Income

The Credit Suisse Western European Leveraged Loan Index (“CS WELLI” or “Index”) returned 0.56% in September, comprised of principal return of 0.20% and in terest return of 0.36%.1 Year-to-date (“YTD”) returns are 4.19%.1

European loan performance was robust during the month, despite ongoing market volatility led by continued US/China tariff developments, a shock in oil prices due to an attack on a Saudi field, a spike in short-term funding costs, and increased scrutiny on US IPO valuations. September’s loan market returns were the fourth strongest of the year.1 In comparison, the European High Yield market returned -4bps for the month.2 Secondary markets were buoyant, with the average price of loans increasing by 31bps during the month (to 98.27), which is the largest rally since April. EUR- and USD-denominated loan returns were aligned (57bps and 58bps, respectively).1

Following the holiday slowdown, European loan issuance returned in September at €8.4 billion, about 8% below the same period last year. Monthly issuance was dominated with transactions related to M&A activity, which accounted for three-fifths of volume. While supply is catching up, YTD volume of €52 billion remains 23% below last year’s volume (€67 billion). Several large cross-border deals were launched late in the month.

At month end, S&P Leveraged Commentary & Data’s (LCD) forward loan calendar is in excess of €8 billion across multiple deals. CLO forward volume stands at 11 vehicles at €3.9 billion. Further tightening of AAA liability spreads has been observed, with pricing in the low 90s (yearly lows). YTD CLO new issue levels stand at €22.6 billion, which is +6% ahe ad of the same period last year. The European CLO market posted its busiest quarter in a year.

European PMIs remain weak, with Germany notably missing expectations. With other data released, such as poor US auto sales numbers, there are signs that a darker, broader economic environment is emerging. Locally, the ECB has restarted the stimulus fire; the initial rally across European credit following September’s ECB meeting was relatively short-lived, helping the ECB’s argument that monetary policy needs to be supported with increased fiscal measures. Both measures will naturally be supportive for loans.

The CS WELLI’s nominal value (size of the market) at the end of the month was €309 billion, a 9.1% increase YTD.1

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^1 Credit Suisse Western European Leveraged Loan Index (CS WELLI) in EUR as of Sept. 30, 2019.
^2 Credit Suisse Western European High Yield Index as of Sept. 30, 2019.

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