The Case for Senior Secured Loans: Q4 2023

Key takeaways
High level of current income
Loans have proven to provide consistent, stable income through varying market cycles, including recessionary periods and periods of falling rates.
Floating rate feature
This environment benefits senior secured loan investors through higher coupon income whether rates increase or not.
Compelling relative value
Loans have offered one of the best yields in fixed income, while providing downside risk mitigation by being senior in the capital structure and being secured by the assets of the company.
Now that 2023 has come to a close, there has been a significant focus on the uncertainty of the US macroeconomic backdrop and its potential implications for the senior secured bank loan market.
Paramount among these concerns are three key questions:
- How are underlying issuers able to handle inflation pressures and will they be able to pass along increased costs to their consumers?
- Where are we in the interest rate cycle and how will this affect issuers?
- What effect will a potential recession have on issuers?
This piece provides our view on the current market environment and attempts to answer these critical questions.
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