Despite increasing credit risk, we believe loans will dampen portfolio volatility this year, much as the asset class did in 2018.
What does the recent surge in LIBOR mean for senior loan investors?
Recent announcements from the U.K.’s Financial Conduct Authority (FCA) have quickly turned into reports declaring the death of LIBOR.
Recent announcements from the U.K.’s Financial Conduct Authority (FCA) have quickly turned into reports declaring the death of LIBOR. As speculation continues to mount, our latest analysis provides investors with a framework to help understand the implications for senior loan and CLO markets.
Careful consideration is in order when selecting a senior loan strategy. Many loan funds actively include a sizeable allocation to other bond or bond-like assets, which can materially change the risk profile of a portfolio, particularly in a rising rate environment.
While strong loan demand has contributed to near-term credit spread compression, longer term the investment case for senior loans remains well intact. In fact, despite the recent pressure, spreads in the loan market remain above their historical averages.
With the Fed signaling as many as three interest-rate increases in 2017, disappearing LIBOR floors represent another compelling reason to consider an allocation to senior bank loans.