When Popularity is an Achilles’ Heel: Bank Loan Re-Pricings

November 10, 2017 | Ben Mohr, CFA, Senior Research Analyst, Fixed Income

Through October, bank loans are up only 3.7% compared to high yield’s 7.5% return, and the disparity between the two below-investment grade strategies has surprised some investors. The root cause of bank loans’ relatively disappointing returns is re-pricings, which tend to offset the floating rate value proposition of bank loans. Re-pricings have preserved the absolute value of bank loan yields, even with LIBOR rising to its current level of 130bps. As a result, bank loan returns have been muted this year, despite the credit rally in 2017.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice nor an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Ben Mohr, CFA
Senior Research Analyst, Fixed Income

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