Monthly US Loan Market Update - August 2019

Monthly insights and updates from the Invesco Fixed Income team

Aug 12, 2019 | Invesco Fixed Income

The senior secured loan market added to its strong first half performance, gaining 0.80% during July and bringing year-to-date returns to 6.59%.1 A better-than-expected start to earnings season, constructive economic data, and balanced technicals supported loan prices throughout the month. While uncertainty over trade continued to complicate investors’ macroeconomic outlook, the US Federal Reserve (Fed) followed through on expectations that it would pivot to more accommodative policy by lowering interest rates by 0.25% and announcing an end to its balance sheet reduction efforts. The Fed characterized its decision as a “mid-cycle adjustment” rather than as the start of a full-blown easing cycle, leading markets to view it as a “hawkish” rate cut. The implication is that further rate reductions will depend on the magnitude of economic deceleration that threatens to materialize. Beneath a busy month in policy developments, loan market technicals remained well supported by firm CLO demand, slowing retail outflows, relatively muted new issue supply, and a growing pipeline of loan repayments that will inject cash into the market. 

After a period of lagging the returns of other credit products, loans outperformed in July. High yield bonds gained 0.55% and investment grade returned 0.68%,2 each benefitting from similar market themes as loans. The 10 year Treasury was flat as yields inched up 1 basis point to 2.02%. 

The percentage of loans trading above par grew to 28.8% as prices rose.3 From a quality perspective, “BBs” (0.79%) lagged “Bs” (0.84%), but outperformed “CCCs” (0.53%) during the month.4 

The average price in the loan market was $97.44 at the end of July.5 At the current average price, senior secured loans are providing a 6.44% yield inclusive of the forward LIBOR curve.5

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^1 S&P/LSTA Leveraged Loan Index as of July 31, 2019.
^2 S&P/LSTA Leveraged Loan Index and Bloomberg as of July 31, 2019. High yield represented by BAML US High Yield Index;
investment grade represented by the BAML Investment Grade Index.
^3 JP Morgan as of July 31, 2019.
^4 S&P LCD as of July 31, 2019.
^5 S&P LCD and Invesco as of July 31, 2019.


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