The Takeaway
In the last quarter of 2025, the Federal Reserve reduced the federal-funds rate by 50 basis points through consecutive rate cuts in October and December.
The Bank of England implemented a 25-basis-point cut, bringing the policy rate to 3.8% at the December 2025 Monetary Policy Committee meeting. In comparison, the European Central Bank kept the key ECB rates unchanged, maintaining the deposit facility rate at 2%.
Shorter-maturity Treasury yields declined by an average of 35 basis points, while longer-maturity yields increased modestly, rising only 8 basis points.
The Morningstar Leveraged Loan Monitor for Q4 2025 delivers an in-depth analysis of the leveraged loan market, with a focus on the US, European, and global indexes. During the quarter, the US Federal Reserve and Bank of England implemented rate cuts to stimulate economic growth, while the European Central Bank maintained its policy stance. The yield to maturity on the Morningstar LSTA US Leveraged Loan Index declined by 25 basis points, ending the quarter at 8%. Conversely, the Morningstar European Leveraged Loan Index saw its yield to maturity peak at 7.1% in October 2025, before easing by 39 basis points to close the year at 6.7%. The Morningstar LSTA US Leveraged Loan Index provided the best risk/return characteristics across all regional variants over the fourth quarter amid increased market volatility and secondary market weakness. Issuance activity slowed in both the US and Europe, with both regions experiencing a decline in new loan volumes.
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