Monthly US Loan Market Update - September 2020

Monthly US Loan Market Update - September 2020

Loan prices continued marching back towards pre-COVID levels in August, as the asset class gained 1.49% during the month and improved year-to-date returns to -1.29%.1 Less-bad-than-feared Q2 earnings, improving economic activity, hopeful signs for vaccine development, and unwavering monetary policy support all facilitated asset price recovery even as COVID infections remain worryingly high and political gridlock has delayed the reauthorization of crucial fiscal support measures. Technicals remained supportive even with muted CLO issuance as the typical August lull in supply set in, contributing to a steady technical balance. Case in point, loan prices advanced in every trading session of the month except for one.1

Loans outperformed high yield bonds (0.98%) and investment grade (-1.15%) in August amid a comparatively smaller new issue supply surplus.2 The percentage of loans trading below $80 declined from 8% to 6% while the top end of the market moved higher; the percentage trading at or above $98 increased from 26.0% in July to 35.8% in August.3 From a credit quality perspective, lower quality outperformed in August; “BBs” (0.70%) lagged “Bs” (1.53%) and “CCCs” (4.07%).1 The average price in the loan market was $94.20 at the end of August.3 At the current average price, senior secured loans are providing a 6.08% yield inclusive of the forward LIBOR curve.3

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1 S&P/LSTA Leveraged Loan Index as of August 31, 2020.
2 S&P/LSTA Leveraged Loan Index and Bloomberg as of August 31, 2020. High yield represented by BAML US High Yield Index; investment grade represented by the BAML Investment Grade Index.
3 JP Morgan as of August 31, 2020.