Monthly US Loan Market Update - September 2019

Monthly insights and updates from the Invesco Fixed Income team 

Sep 10, 2019 | Invesco Fixed Income

A reescalation of US-China trade tensions and softening global economic data weighed on market sentiment throughout August. These developments fueled further rate cut expectations, prolonging the rotation of retail flows out of loans. Countering these headwinds to loan demand, CLO formation provided a steady bid for loans as managers continued to nearly keep pace with last year’s record CLO volume. Additionally, new loan issuance was muted as is seasonally typical, helping to balance the technicals as the market had little incremental supply to absorb. In fact, the size of the loan market contracted for the second straight month as repayments exceeded new issuance. Against this backdrop, the senior secured loan market gave back its July price gains, returning -0.27% overall in August.1 Despite $26.9 billion of retail outflows witnessed thus far in 2019, the asset class has continued to deliver strong returns, as year-to-date returns of 6.30% are the strongest of the past 10 years.1,3

Loans underperformed during the month, lagging longer duration assets which benefitted from the continued downward shift in interest rate expectations. High yield bonds gained 0.39% and investment grade returned 3.03%2 while the 10 year Treasury soared 4.67% as yields plummeted 52 basis points to 1.50%. The percentage of loans trading above par dropped to 20.6% as prices declined.3 From a quality perspective, “BBs” (0.09%) bested “Bs” (-0.41%) and “CCCs” (-1.81%) during the month as the market clearly reflected a higher quality bias.4 The average price in the loan market was $96.64 at the end of August.5 At the current average price, senior secured loans are providing a 6.13% yield inclusive of the forward LIBOR curve.5

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^ 1 S&P/LSTA Leveraged Loan Index as of Aug. 31, 2019.
^ 2 S&P/LSTA Leveraged Loan Index and Bloomberg as of Aug. 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 Aug. 31, 2019.
^4 S&P LCD as of Aug. 31, 2019.
^5 S&P LCD and Invesco as of Aug. 31, 2019.


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