Private credit Private credit: A case for senior loans

As the first quarter comes to a close, Investors are increasingly reassessing the health and positioning of the bank loan asset class amid a backdrop of macroeconomic uncertainty and headline-driven volatility. Despite these challenges, we see three compelling reasons to consider investing in senior secured loans now. (This is an excerpt from our latest whitepaper, The case for senior loans. For a deep-dive into the sector and our outlook, read the complete paper.

1. Potential high level of current yield

Yield is driven by two primary components: income and price appreciation. For loans, the income component remains particularly compelling. Higher‑for‑longer base interest rates and persistently wide credit spreads support elevated income levels allowing loan yields to remain attractive relative to historical norms. Market expectations continue to point to interest rates staying above pre‑2022 levels reinforcing this income advantage. In addition, loans are currently trading at an average price of approximately 95, providing incremental potential for price appreciation alongside income.¹ Historically, leveraged loans have delivered consistent and relatively stable returns across a range of market environments, including recessionary periods and cycles of declining rates.

2. Resilience to interest rate changes

Bank loans are uniquely positioned in today’s market to deliver high income regardless of the direction of interest rates. As floating-rate instruments, their coupons reset regularly to SOFR potentially helping insulate investors from the price volatility that affects traditional bonds. Whether rates rise or fall, loan prices are not directly linked to interest rate volatility and continue to generate attractive income. Importantly, interest rate movements are notoriously difficult to predict. As a floating rate asset class, when rates rise, coupons increase; when rates fall, loans reset lower but still offer competitive yields relative to other fixed income segments such as high yield bonds. Moreover, declining rates ease interest express burden on borrowers, improving issuer fundamentals and reducing default risk. This flexibility makes loans a reliable source of income in both rising and falling rate environments, making this worth considering in portfolios.

3. Compelling relative value

Loans have consistently provided some of the most attractive yields in the fixed income market, while also offering downside risk mitigation due to their senior position in the capital structure and being secured by a company’s assets. In 2025, high yield bonds outperformed loans largely driven by the longer duration of high yield bonds benefiting from rates falling¹,². However, much of that duration trade is now priced in. High yield bond spreads have compressed to historically tight levels limiting forward return potential. In contrast, loan spreads remain near their long-term averages, and loans continue to trade at a discount, creating a potentially appealing entry point and price-upside opportunity as spreads normalize. Loans also offer these high yields with potentially lower risk. In a recessionary scenario, loans can provide further downside risk mitigation due to their senior secured status, which gives them the highest priority for repayment in the event of default. Historically, this seniority has translated Strategy Insights | Private Credit 2 into stronger recovery rates and lower credit losses during economic downturns reinforcing their role as a resilient asset class with historically positive annual returns.

Read the complete whitepaper, The case for senior loans.