Amid flagging investor optimism, persistent inflation, renewed warning signs of a recession and expectations for another 75 basis-point rise in the Federal funds rate this week, US leveraged loans have been a rare bright spot.
The Morningstar LSTA® US Leveraged Loan 100 Index, designed to measure the performance of the 100 largest facilities in the US leveraged loan market, has held up fairly well in 2022, down 2.2% relative to an 11%+ decline on the Morningstar High Yield Bond Index year-to-date as of September 19 and even larger year-to-date losses on the Morningstar US Core Bond Index for the same time period. The index is up nearly 3.5% in the third quarter as of September 19. In addition, yields on the index are trending near year-to-date highs at 7.3%.
Katie Binns, Director of Fixed Income & Multi Asset Indexes, Morningstar
“In this ‘nowhere to run, nowhere to hide’ market, US bank loans, or leveraged loans, have been a rare bright spot. These loans are generally considered higher quality and are shorter in duration than high yield bonds, and in times of market stress fixed income investors tend to move up the quality scale while shortening duration. Leveraged loans have historically performed well in a rising interest rate environment. And the floating rate nature of leveraged loans offers investors protection from inflation and a source of steady income.”
To speak with Katie Binns, reach out to Tim Benedict at firstname.lastname@example.org or (203) 339-1912.
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