Monthly US Loan Market Update - October 2019

Monthly insights and updates from the Invesco Fixed Income team 

Oct 9, 2019 | Invesco Fixed Income

The senior secured loan market gained 0.47% in September, bringing year-to-date returns to 6.79%.1  Following a sleepy summer for new issuance, supply picked up in September as an array of new primary loan deals came to market. Despite the influx of supply, mild retail outflows, moderating CLO demand, and menacing geopolitical headlines (e.g. attack on Saudi oil production, Congressional impeachment inquiry, US Federal Reserve (Fed) intervention in repo markets), loan prices were approximately flat during the month, again demonstrating the resilience of the asset class. 

Beneath the calm, there was a clear bifurcation in the performance of higher and lower quality assets. Higher quality loans continued to outperform as budding cyclical concerns and idiosyncratic, issuer-specific pitfalls quelled the overall risk appetite among investors.

Loans outperformed during the month, besting longer duration assets which wilted in response to a modest reversal of declining interest rate expectations. High yield bonds gained 0.32%; however, investment grade returned -0.62%2 and the 10 year Treasury lost 1.41% as yields rose 17 basis points to 1.67%. The percentage of loans trading above par rose to 34.1% as prices inched up in the higher quality end of the spectrum.3  “BBs” (0.62%) and “Bs” (0.55%) definitively outpaced “CCCs” (-1.36%) during the month as investor buying maintained a higher quality bias.4 The average price in the loan market was $96.63 at the end of September.5 At the current average price, senior secured loans are providing a 6.37% yield inclusive of the forward LIBOR curve.5

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^ 1 S&P/LSTA Leveraged Loan Index as of Sept. 30, 2019.
^ 2 S&P/LSTA Leveraged Loan Index and Bloomberg as of Sept. 30, 2019. High yield represented by BAML US High Yield Index; investment grade represented by the BAML Investment Grade Index.
^3 JP Morgan as of Sept. 30, 2019.
^4 S&P LCD as of Sept. 31, 2019.
^5 S&P LCD and Invesco as of Sept. 31, 2019.

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