Investing Ideas

What leveraged loans can do for your portfolio

How the high starting yields of loans could add value even if rates move lower.

By: David Hays Brian Donnelly Nils Bierkamp Jonathan Cain
Updated: 5/2/2024
Key Takeaways
  • Leveraged loans offer relatively low interest-rate-sensitivity and have generated a positive return for shareholders in 25 of the past 27 years.
  • It’s true that loans offer floating-rate coupons, which tend to move along with the fed funds rate, although we believe that trying to time the market in this asset class based on what the Fed might do could be a mistake.
  • Starting yields for loans as of the second quarter of 2024 are the highest of any major fixed income sector at about 10%, providing a cushion against potential price declines.
  • New-issue activity for collateralized loan obligations (CLOs) so far in 2024 is running at its highest pace ever, which we believe provides solid support for the leveraged loan market.
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