The US leveraged loan market, as reflected by the Morningstar LSTA US Leveraged Loan Index, has led all US fixed income asset classes in 2023, as strong performance continued throughout the third quarter.
The index, which has risen 10.2% for the year-to-date as of September 29, is on pace to potentially outperform its performance in 2016, when it rose 10.2% in its strongest performing year since the Global Financial Crisis.
Similarly, the Morningstar LSTA US Leveraged Loan 100 Index, which measures the most liquid segment of the US leveraged loan market, is up 9.7% year-to-date.
These returns strongly outpace those of the high-yield bond market, which has returned 4.6% year-to-date and safe haven treasuries, which are in negative territory for the quarter and the year.
Katie Binns, Fixed Income & Multi-Asset Index Director, Morningstar, said:
“The US leveraged loan market has delivered three consecutive quarters of solid performance in 2023 amid a challenging backdrop of ongoing Fed tightening and economic uncertainty. Contributing to this performance has been an increase in average bid price and strong performance of B rated loans, which make up approximately 60% of the Morningstar LSTA US Leveraged Loan Index. Looking to year end, the senior loan market has the potential to deliver record calendar year performance provided the Fed manages to keep a looming recession at bay and defaults remain at low levels.”
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