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LSTA Data & Analysis: Loan Returns Hit Double-Digits in 2016

January 4, 2017 - What a difference a year makes.  In 2015, contagion spread across the fixed income markets as the price of oil plummeted and global economies weakened.  As a result, S&P/LSTA Leveraged Loan Index (LLI) returns ran negative, at 0.69%, for just the second time in the LLI’s 20-year history. (The other time, of course, was 2008.)   Fast forward to 2016, where risk assets and commodities rallied which subsequently lifted loan returns above 10% for only the third time in the past 20 years.

1Q16:  Nine is Enough.  It was not a straight shot back to par in 2016 as February did in fact mark the ninth-consecutive month of red ink in the loan market (despite a late month rally).  During the final five weeks of the third quarter though, trade levels in the secondary loan market spiked 225 basis points higher (alongside stronger equity, HY bond and commodity markets).  As a result, LLI returns ended the first quarter in the black at 1.55%, an astonishing turn-around considering we were in the red at 1.5% in late February.  In retrospect, the first quarter represented a huge turning point for the broader markets, not just loans, with the Dow Jones Industrial Average recording its biggest quarterly comeback since 1933 and WTI crude oil registering its first positive quarter in the last three quarters (just like loans).

2Q16:  No Brexit For You.  While second quarter headlines read Brexit and all the subsequent turmoil which ensued, the loan market quietly produced the most successful first half since 2009.  By the end of June, average trade prices had increased 460 basis points (235 during 2Q16) while the median trade price (99.68) shot above 99.5 for the first time in almost one year.  At the half way point, the LLI was in the black for 4.6% (after returning 2.9% in the second quarter).  

LSTA Full and Associate Members can access the full December MTM Monthly, including Charts, here.  For more information, please contact Ted Basta.

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