On the Blotter: Loan prices are off their YTD highs, but the asset class continues to outperform HY in September
Loan prices rallied through the end of the summer, reaching an 8-month high in the first week of the month. Since then, it’s been a bumpy ride with prices down >1/2pt on the Octaura Broad tracker. But that price move belies a much more bullish reality. Market participants point to strong corporate earnings, increasingly robust CLO creation, and positive net fund flows as evidence of strong demand and sound fundamentals in the loan market.1 The price move, when taken into context compared to HY and the rate environment, supports that narrative. JPM research points out that loans are outperforming HY by the widest margin in 4 years (+203 bps in September). The recent rate move has pushed the yield on loans to a 3yr takeout to 9.5%, a multi-year high1, and as of Sept. 21, 61% of the Broad universe was bid above par, the highest level since Jan. 22.
The floating rate nature of loans can be an advantage in a rate hiking environment. As rate expectations change and capital moves between asset classes, access to liquidity and timely market data (particularly pre-trade data) has been more important than it was over the summer when rates and prices were more benign. As of Sep 29, buyers executed 17c closer to mids than sellers and saw ~13c more price improvement over the best level on screens at the time of trade, while the Octaura Broad Tracker continued to fall to a MTD performance of -56c. However, the move down was not uniform: OLS 10 loans are +11c MTD while OLS 4 loans are -110c. The IT & Software sector is +56c while Consumer Staples is –62c. But despite day-over-day shifts, the balance of the month showed similar distance to mids and hit rates across liquidity buckets for buyers and sellers.
Additionally, throughout the month we’ve observed an increase in CLO demand on the platform as the repricing wave continued.2 Post-Labor Day, the primary markets reopened with LevFin Insights counting approximately $42 billion across 30 loan deals during the post-holiday week, including $10.8 billion of LBO and M&A launches.3 On Octaura, buyers were active around CLO ramping, fund inflows, the new-issue calendar and opportunistic secondary purchases. In one stretch, 90% of inquiry came from customer buying, vs. 48% year to date, while dealers posted a 93% response rate and two-thirds of trades executed within 10c of mids or better. On another day, buyers made up 96% of inquiry, with execution averaging 8c from mids and about 8c of improvement versus best screen levels. Later in the month, the focus shifted toward repositioning ahead of a busy new-issue calendar, with 65% of inquiry directed to a single dealer, roughly three times the 2026 average. However, the buy/sell skew landed balanced for the month, seeing appetite for use cases on both sides of the trade.
Amid volatility, these nuanced observations as seen on Octaura can help inform trading strategies for managers and participants moving risk across asset classes in this environment.
Sources
- Credit Strategy Weekly Update – Research – J.P. Morgan Markets
- Bloomberg Link
- Fitch Leveraged Loan Recap
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