Senior Loan Talking Points
Managing Director, Head of Bank Loans and Global CLOs
Weekly Notables
April’s strong performance extended into May, as risk assets continue to reflect strong investor optimism. Equities set new all-time highs this week, while credit spreads tightened further as higher yields have led to a surge in demand across the fixed income market. The U.S. loan market, as represented by the Morningstar LSTA U.S. Leveraged Loan Index (Index), returned 0.25% for the seven-day period ending May 7. The weighted average Index bid price gained ten basis points (bps), ending the week at 95.41.
The primary market saw a modest surge in activity this week, although volume continued to primarily reflect opportunistic transactions given the firmer secondary backdrop. When stripping out issuance related to repricingsand add-on deals, new supply was just $2.2 billion, well below last week’s $9.3 billion. The M&A pipeline remains subdued, which is reflected in the muted forward calendar, as repayments continue to outstrip new supply, to the tune of $6.7 billion this week.
The secondary market remained firm, as positive earnings’ momentum is contributing to the stable backdrop with a recovery that seems broad based across various sectoral themes. Furthermore, ramping CLOs continue to provide healthy bid support, particularly for higher-quality assets. This was evident in the performance across rating cohorts, as BBs and Bs delivered strong advances this week, while the highly idiosyncratic CCCs were in the negative territory.
Investor demand increased this week across the measurable segments. Within the dominant CLO buyer-base, managers priced seven new deals this week, bringing YTD issuance to $55.2 billion. On the other hand, US retail loan funds attracted $586 million of net inflows for the week ending May 6, according to Morningstar, the strongest weekly inflow since July 2025. While both ETFs and mutual funds were positive this week, marking a broad-based increase in demand, ETFs drove the bulk of inflow activity at nearly $450 million.
There were no payment defaults in the Index this week.
Source: Pitchbook Data, Inc./LCD, Morningstar LSTA US Leveraged Loan Index. Additional footnotes and disclosures on back page. Past performance is no guarantee of future results. Investors cannot invest directly in the Index. *The Index’s average nominal spread calculation includes the benefit of base rate floors (where applicable).
Monthly Recap: April 2026
April was dominated by persistent headlines around the Iran conflict, which fueled sharp volatility in both oil prices and rates markets. Brent crude spiked early in the month after President Trump threatened strikes on Iranian infrastructure if Iran did not reopen the Strait of Hormuz, but prices eased after a ceasefire was announced and optimism grew for a near-term resolution to the conflict and the associated maritime disruption. Nonetheless, oil prices remained elevated throughout April as ongoing uncertainty over the Strait of Hormuz and fragile U.S.-Iran negotiations continued to stoke inflation fears, driving government bond yields higher in the U.S. and other major economies. The March CPI print reinforced expectations for a delay in monetary easing, with markets pushing back rate-cut expectations well into 2027. Furthermore, the April FOMC meeting signaled a hawkish tilt, as there was more dissent than usual among members, with the committee moving from an easing bias to a more neutral stance. Despite these macro and geopolitical headwinds, credit spreads tightened meaningfully during the period and equities rebounded strongly after March’s weakness, with the S&P 500 gaining 10.5% for its best month since November 2020. The strong performance was driven by robust corporate earnings and resilient investor optimism around the ceasefire, even amid elevated global risks.
The U.S. loan market rallied alongside other risk assets, as the Index returned 1.29% for the month, posting its strongest monthly return since last May and bringing performance back into positive territory for the YTD period. The weighted average Index bid price increased by 68 bps, ending the month at 95.31. Excluding software, loan prices rose to 96.83, the highest mark since early February. While software has stabilized in the last two months, bifurcation remains prevalent within the space, with AI disruption fears continuing to be top of mind. Across ratings, Single-Bs outperformed BBs for a second consecutive month, while CCCs had their best return in 11 months, paring down some of the steep losses experienced this year.
Despite the improvement in the secondary market, activity in the primary market was subdued as market participants continued to navigate headwinds around tariffs, AI disruption risks, potential fallout from private credit market headlines, and geopolitical uncertainties. Total issuance, including repricing transactions, amounted to just $30 billion. After a strong start to the year, elevated uncertainty has weighed on loan issuance over the last three months. YTD supply (excluding repricings) is tracking roughly $131 billion, down 13% from last year’s pace. Following strong LBO activity in March due to a few mega-sized deals, acquisition-related supply fell to just $6.6 billion in April. However, the market ended April with its first supply surplus in months, as investor demand decreased sharply due to very muted CLO issuance during the month. CLO managers priced just $5.7 billion across 13 deals in April, the slowest monthly volume since December 2023. YTD issuance has been healthy at $52.7 billion, but 18% below last year’s pace for the comparable period, as wider liabilities have curtailed issuance over the past six weeks. US retail loan funds recorded a modest net inflow of $89 million in April, resulting in the first positive month since last July. However, outflows remain deep in the red for the YTD period at $6.9 billion.
The last twelve-month (LTM) traditional payment default rate fell by 10 bps in April to 1.34%, as no new payment defaults were recorded and two issuers rolled off the trailing list. Furthermore, there were no liability-management exercises (LMEs) for the month, with three issuers rolling off the trailing list. As a result, LCD’s dual-rate tracker that combines traditional payment activity with LMEs fell sharply to 2.84%, down 64 bps month-over-month and 154 bps year-over-year.
Source: Pitchbook Data, Inc./LCD, Morningstar LSTA Leveraged Loan Index. Additional footnotes and disclosures on back page. Past performance is no guarantee of future results. Investors cannot invest directly in the Index. *The Index’s average nominal spread calculation includes the benefit of base rate floors (where applicable).