2020 Outlook: Floating-Rate Loans

Timely insights from portfolio managers and industry experts on key financial, economic and political issues.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness.

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      By Andrew Sveen, CFACo-Director of Floating-Rate Loans, Eaton Vance Management

      Boston - My outlook for bank loans in 2020 is cautiously optimistic.


      There is some heightened concern in the financial markets that we are quite long in the tooth in the economic cycle. And there is potential for a pullback in the markets.

      To the extent we see any slowing down of the economy, that would be negative for many markets, including leveraged loans. There have been some indications of heightened risks in the general loan market.

      All that being said, in our portfolios we're not really seeing indications that we're entering any tough times.

      Conservative positioning and consistent income potential

      Here at Eaton Vance, we've been able to position the portfolios somewhat more conservatively than some of our peers in the marketplace. And therefore I feel like we're well positioned to encounter any type of economic environment that we might see.

      Loans do offer a good strong consistent income, which would provide a good ballast to any bumps in the economy.

      Compelling yield in a low rate environment

      I'm also optimistic about loans given the current interest rate environment. The US Federal Reserve (Fed) has indicated that they are going to be on pause with further rate cuts. A stable rate environment without more rate cuts would be beneficial for a floating-rate product.

      Also, loans offer a very compelling yield, in the area of a 5% coupon — higher than some other fixed income alternatives that are out there right now.

      Bottom line: This is a relatively low interest rate environment. So when you can clip a 5% coupon, that's pretty attractive.