The U.S. leveraged loan secondary market saw a widespread selloff in November amid stock market volatility and some biting losses in broader financial markets. The loan asset class declined 0.90% last month, its worst performance in almost three years, putting the 2018 YTD return behind 2017 for the first time this year, at 3.06%, versus 3.71% a year ago.
The last time the S&P/LSTA Leveraged Loan Index posted a loss of such magnitude was in December 2015, when loans declined by 1.05%. There are many parallels to that period three years ago—global capital markets posted heavy losses across the board, and for loans specifically, new issuance dried up amid heavy withdrawals from retail loan funds.
Loans have now been in the red for two consecutive months, which had not happened since the first two months of 2016. In fact, loans gained an average of 44 bps per month between January and September of this year, entirely from coupon clipping. Although secondary prices gyrated somewhat throughout the first three quarters, on average, market value remained flat during this time. – Marina Lukatsky
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