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US senior secured loan market - 2016 review and 2017 outlook

23 January 2017 | Invesco Senior Secured Loans

Entering 2017, senior secured loans present an attractive allocation opportunity amid supportive credit conditions overall. This update reviews 2016 and looks ahead to 2017 for senior secured loans.

Loans have provided a combination of strong current income with relatively low volatility given their defensive position in the capital structure and short duration. The asset class delivered strong performance versus our expectations in 2016, providing investors with favorable absolute and volatility-adjusted returns of 9.88%. The year was broadly characterized by a “risk-on” tone following a brief period during the early months in which market fears over global risks carried over from the back half of 2015. Post mid-February, concerns about the impact of slower Chinese growth abated, alleviating pressure on commodity prices and ushering a period of loan price appreciation. As has been the case throughout the post-Global Financial Crisis era, volatility in loans was relatively muted as their senior secured status helped absorb short bouts of uncertainty while the floating rate feature of the asset class insulated loans from the pressure felt by longer duration assets late in the year once interest rates began to rise.

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Tags: Fixed income