Bank Loans Position Paper

June 14, 2019 | Ben Mohr, CFA, Director of Fixed Income, Managing Partner

Bank loans represent a key strategic asset class for most institutional investors’ fixed income portfolios. Some of the critical benefits of bank loans include yield that is typically greater than that of core bonds, a floating rate and therefore very little interest rate risk, and a senior secured level in the debt capital structure of issuers such that default risk is minimized and recovery rates are maximized. This position paper covers the history of the asset class as well as some unique characteristics that make it a vital part of many institutional investors’ portfolios. We will also examine its historical returns and correlations with other asset classes, as well as its risks ranging from credit to liquidity risk and interest risk to reinvestment risk. We will conclude with an assessment of its recent valuations as well as how to access this asset class.

Download PDF >

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or 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
Director of Fixed Income, Managing Partner

Get to Know Ben

Related Content

08.19.2021

China: From Leader to Laggard

In 2020, China was a top performer in the global equity market, returning 29.5%. In 2021, however, Chinese equities have…

Three-line chart showing Consumer Price Index year-over-year growth (representing actual inflation) and 2- and 5-year breakeven inflation rate (measuring difference in yield between U.S. Treasury bonds and TIPS of the same maturity). Chart subtitle: CPI and breakeven inflation rate data can help shape future inflation expectations Chart description: Y-axis shows range of percentages from -6% to +6%. X-axis shows years from 2004 to present (though labeled by year, so final label is 2020). Headline CPI Y/Y is green line; 2-Year Breakeven is purple; 5-Year Breakeven is teal. Labels on chart highlight that Y/Y headline CPI peaked twice after 2008's financial crisis. In 2011, the 5-year breakeven fell below 2-year breakeven as leading indicator of CPI declining and normalizing a year later. Most recently, Y/Y headline CPI running hot again but potentially plateauing and the 5-year breakeven is already below the 2-year breakeven and both potentially plateauing. Chart sources: Marquette Research, Bloomberg; latest available as of August 13, 2021.

08.18.2021

Where is Inflation Headed?

Despite a number of commodity prices, including lumber, corn, and pork, retreating from recent highs, inflation remains a key focus…

07.26.2021

Have Things Been Too Quiet?

Although this is only the second iteration of my quarterly letter series, Marquette has always produced quarterly market narratives in…

07.22.2021

2021 Halftime Market Insights Video

This video features an in-depth analysis of the first half of 2021, reviewing general themes from the second quarter and…

06.09.2021

Value vs. Growth: Where Do We Go from Here?

In a reversal of trends that had persisted for several years, value stocks have largely outperformed their growth-oriented peers since…

Two line charts showing Bank Loan and High Yield Spreads. Chart subtitle: Bank loan and high yield spreads are now tighter than they were pre-pandemic. First chart description: Left y-axis shows Bank Loan Spreads, ranging from 0bp to 2,500bp. X-axis shows months in two-month increments, from December 2019 to April 2021. Second chart shows the same for High Yield Spreads. Lines in each chart are the same industries: Energy (Beat-Up), Retail (Beat-Up), Transportation (Beat-Up), Financial (More Stable), Tech (More Stable), and Utilities (More Stable), with descriptors applied to those industries that fared better or worse throughout the early 2020 COVID panic. In both charts, all industries spiked in March 2020 and have since fallen to pre-pandemic levels. Chart source: Credit Suisse Leveraged Loan Index 3-year discount margin over LIBOR and High Yield Index Spread over Treasuries.

05.26.2021

Spreads Largely Pricing in a Full Recovery

Spreads for industries that were beat-up during the early 2020 COVID panic — energy, retail, and transportation — as well…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >