“The market got heated and a little cooling off is a positive,” said Mike Terwilliger, a portfolio manager at Resource Alts. “The market is, to some extent, pulling back and being a little more rational and disciplined, and that’s a good thing.”
Top Performer
The U.S. leveraged loan market has gained 3.2 percent this year through Aug. 22, according to the S&P/LSTA Leveraged Loan Total Return Index. That’s better than high-yield bonds, Treasuries, and government-backed mortgage securities, to name a few, according to Bloomberg Barclays index data. But many of the gains for loans have come from interest payments-- prices have gained just 0.28 percent for the year, and are down this month.
To be sure, most loans are still pricing at the lower end of talk or even tighter than talk, as strong demand has allowed borrowers to offer less compensation and fewer protections. But as Aveanna Healthcare, a home health service provider, and chemical maker SI Group have recently shown, not all issuers are immune. Both had to widen pricing, twice in Aveanna’s case, and offer significant discounts to get the deals done. Representatives for both companies didn’t comment.
Other forms of corporate debt are showing signs of weakness too. A JPMorgan Chase & Co. survey found that fund managers were becoming increasingly bearish on corporate credit. High-yield bond spreads have widened almost 20 basis points since last week.
“Valuations got a little too high and they’ve adjusted marginally, and that’s a good sign,” said PGIM’s Collins. “People are getting a little more skittish on credit risk.”
This story provided by Bloomberg News.