EV Forward: Leveraged Credit

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

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

      Boston - Despite a handful of U.S. Federal Reserve (Fed) cuts so far this year, positives abound for floating-rate senior loans, whose interest payments move in tandem with short-term rates.

      The yield on floating-rate loans remains high, both in absolute terms and relative to their own history as well as other fixed income sectors like high yield and emerging markets.

      One of the few segments in the bond world trading at a discount to par, the loan market has been signaling value — especially with a positive fundamental outlook and a default rate, at just over 1%, that we expect to remain low in 2020.

      If the Fed remains on hold, performance in bond markets will largely come down to starting yield; on that measure, floating-rate loans, which are senior in the capital structure and secured, could have a big head start.