Leverage Loan Returns Sink in Europe as Investors Shift Focus Within Segment

europe leveraged loans

In June, the European secondary loan market experienced its worst returns in two years. However, unlike in June 2016 — when the market was reacting to a geopolitical event, namely the U.K.’s Brexit vote — this year the trigger was market-driven, with secondary prices tumbling as loan investors rotated out of lower-priced names to take advantage of higher yields amid a rapidly repricing primary market.

As a result of steep secondary price declines, the S&P European Leveraged Loan Index (ELLI) lost 0.43% last month — the first time this measure has been in the red this year, and the worst performance since the 0.60% loss recorded in June 2016. The first five months of 2018 delivered positive (albeit unspectacular returns), averaging 0.27% per month (excluding currency fluctuations). For the year through June 30 the ELLI was up 0.90%, a far cry from the 2.65% gain racked up in the first half of 2017. – Marina Lukatsky

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