July 10, 2019 - The S&P/LSTA Leveraged Loan index (LLI) has returned 5.7% at the half-way point of 2019 – giving way to the best start of a year since the famed loan market rally of 2009.  But 2019’s gains have not been just a straight shot higher nor have they outdone those produced by any of the other major asset classes – from equities through treasuries. The belly of this year’s loan return, 4.1%, took place during the first two months of the year when prices in the secondary recovered from December’s oversold levels.  Then in late March, the rally came to a screeching halt as the Fed announced that rates would no longer be rising anytime soon.  The result?  The LLI fell back into negative territory on the month but still delivered a first quarter return of 4%. 

The loan market quickly reversed course in April as loan market technicals shifted sharply towards excess demand for the first time in more than a year.  Loans would go on to follow other risk assets higher that month and return 1.7% – the second highest return (only behind January 2019) in more than two years.  Since then, returns have fluctuated from -0.22% in May to +0.24% in June.  In total, loans returned 1.7% across the second quarter, which included an estimated 20 bps gain in market values (noting that market value returns have totaled -1% since the end of April).  That said, the market’s advancer/decliner ratio still came in at a robust 2.4:1 across the second quarter, while falling far short of the 4.9:1 ratio reported across the first half of 2019.

In taking a closer look at June performance, secondary market indicators illustrated a negative bias.  While advancers were slightly outpaced by decliners (40% to 43%), there were a notable higher percentage of big moves to the down side.  Case in point, 13% of loans experienced a price decline of 1% or worse while just 7% of loans experienced a price gain of 1% or more.  For that reason, average bid levels dropped 20 basis points in the secondary to a 96.8 handle – 25 basis points better than its second quarter low but 74 basis points off its high.  On a positive note, mark-to-market bid-ask spread levels continued to remain at their 2019 tights – in a mid-90 basis point context.   Finally, par-plus market share remained flat at 6% in June, after falling 12 percentage points from this year’s high-water mark of 18% registered back in April.   

LSTA Full and Associate Members can access the full Summary, including charts, here.  For more information, please contact Ted Basta.

Become a Member

Membership in the LSTA offers numerous benefits and opportunities. Chief among them is the opportunity to participate in the decision making process that ultimately establishes loan market standards, develops market practices, and influences the market’s direction.

View a list of all members.

Our Partners

cusip-global-services-vector-logo.svgFitch Group logoRefinitiv-(March-2019)SP-Global-Market-Intelligence

Search Results by Relevancy