Monthly US Loan Market Update - December 2019

Monthly insights and updates from the Invesco Fixed Income team 

Dec 10, 2019 | Invesco Fixed Income

The senior secured loan market rebounded from October’s dip, gaining 0.59% in November and bringing year-to-date returns to 6.94%.1 Risk sentiment improved broadly as earnings season exceeded low expectations, US-China trade tensions eased as both sides progressed towards a phase-one deal, and fears of an impending US recession lessened. Within the loan market specifically, issuers posted 4.3% year-over-year EBITDA growth in the third quarter,2 extending a growth cycle many had feared might come to an end this year. Against this backdrop, the ‘flight to quality’ trade of recent months partly retraced during the month. For the first time since July, mid quality “B” credits fared better than higher quality “BBs” as investors became more emboldened to bid for issuers that had been beaten down in recent months. 

Loans outperformed other fixed income products in November, including high yield bonds (0.26%), investment grade (0.21%),3 and the 10-year Treasury (-0.76%). As prices moved up, the percentage of loans trading above par rose to 32%.4 “BBs” (0.52%) underperformed “Bs” (0.86%), but both decisively outpaced “CCCs” (-0.47%) during the month as investors remained wary of the weakest quality issuers.5 The average price in the loan market was $96.07 at the end of November.6 At the current average price, senior secured loans are providing a 6.48% yield inclusive of the forward LIBOR curve.6

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1 S&P/LSTA Leveraged Loan Index as of Nov. 30, 2019.
2 Source: Invesco.
3 S&P/LSTA Leveraged Loan Index and Bloomberg as of Nov. 30, 2019. High yield represented by BAML US High Yield Index; investment grade represented by the BAML Investment Grade Index.
4 JP Morgan as of Nov. 30, 2019.
5 S&P LCD as of Nov. 30, 2019.
6 S&P LCD and Invesco as of Nov. 30, 2019.

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