Loan market practitioners keeping coronavirus in context

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 and Craig P. RussCo-Director of Floating-Rate Loans, Eaton Vance Management

      Boston - Our assessment of the senior corporate loan market hasn't changed this week as stocks have swooned amid worsening coronavirus headlines. To be sure, we've been tracking developments surrounding the virus closely. At the same time, we remain committed to the core tenets of our investment philosophy and the strict adherence of our portfolio construction process. These have endured the test of time - we mark 31 years in this asset class in 2020 - in no small part because a dual focus on bottom-up credit fundamentals and risk management has consistently delivered excellent results for our clients.

      We don't have a detailed "take" on all things coronavirus and what it all "means." Frankly, we raise an eyebrow at anyone who does. Much of the data is suspect. The speed and reach of the virus' ultimate spread are simply unknowable, and therefore its potential impact on global economic growth and financial markets are unknowable as well. Though the study of past epidemics is no guarantee of the future of this particular one, history seems to suggest that little permanent scarring occurred to financial markets following those such as SARS, MERS, bird flu, swine flu and many others - and most certainly not in the senior corporate loan market where we spend our days.

      But is this time different? The reality is that every time is different, in some way. China is a huge economy. It has an interconnectedness to global markets that spans virtually all sectors. By definition, investors won't know if or how different this time may prove to be, until later. Between now and then, markets will do what markets tend to do. They will reward uncertainty with volatility in the short run, reverting to fundamentals as time passes and the unknowns become known.

      Bottom line: During times like these, we think maintaining a well-reasoned asset allocation is perhaps the best advice. We see loans as playing important roles in client accounts today: income producer, volatility dampener, duration diversifier. All three have been on exhibit in this still-young calendar year.