The leveraged loan market has become increasingly divided in 2026, driven by a combination of factors including reduced expectations for rate cuts from the Federal Reserve, ongoing conflicts in the Middle East, and concerns that advances in AI could disrupt software companies.
These AI-related concerns have put significant pressure on the software sector in particular and, due to software’s outsized 12% weight in the Morningstar LSTA US Leveraged Loan Index, have had a notable impact on overall index performance.
Today, Morningstar Indexes introduced 11 new indexes designed to help investors measure the performance of the leveraged loan markets without the influence of the software sector, isolating the performance of the market from sector-specific factors.
The Morningstar LSTA Leveraged Loan ex Software Indexes cover a variety of regions and credit quality segments and are designed to mirror the performance of their respective parent indexes while excluding software loans.
Source: Morningstar Indexes. Data as of July 17, 2026.
Elizabeth Templeton – Director, Fixed Income & Multi-Asset Indexes, Morningstar:
“Our new indexes illustrate the distinct bifurcation that has occurred in 2026 between leveraged loans in the software sector and the rest of the market. While software exposure previously elevated performance in some years, the drag this year has been most pronounced in the US, with the Morningstar LSTA US Leveraged Loan ex Software Index outperforming the Morningstar LSTA US Leveraged Loan Index by nearly a full percentage point. Meanwhile, the Morningstar LSTA US Software Index is down 6.3% year to date through June 30, highlighting significant stress in this sector.”
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