![]() ![]() For the full year, loan mutual funds and ETFs shed $17.5B, per LSEG Lipper. On the retail side of the market, the large outflows witnessed when the Fed started raising rates ebbed in the second half of 2023, leading to modest inflows in three of the last six months of the year. Market observers are pointing to roughly the same levels of issuance in 2024 with private credit expected to grab an even bigger share. Net of CLO calls, run offs and repayments, the CLO market grew $49B, the lowest in six years, per Morgan Stanley calculations, as a shifting investor base, challenging arbitrage and lower loan supply impacted flow. CLO volume, the biggest source of demand for loans, fell 12% YoY to $116.4B but included $28B in private credit/middle market CLOs for a 24% share, the highest on record. ![]() New loan supply was insufficient to meet demand for loans. However, over $28B of institutional loans were also replaced by HY bonds. Competition from private credit grabbed most headlines and Pitchbook LCD tracked $16B of institutional loans that exited the broadly syndicated market via direct lending. Institutional M&A related activity made up a meager 29% share of lending this year, the lowest since 2010, with higher cost of funding and market uncertainty impediments to dealmaking.Īfter expanding 21% between 20, index outstandings declined 1.13% last year. Combined, repricings and refinancings made up the bulk of activity in the month and year. According to Pitchbook LCD, just under $20B of repricings hit the institutional market in December, complemented by $13.9B of refinancings and extensions. The buoyant secondary was an opportunity for lenders to tap the market for liquidity. B rated loans were 1.79% higher, compared to 1.23% for BBs, while CCCs jumped 2.7% in the month to end 2023 with a 14.54% return, bouncing back from the sharp losses (-12.24%) recorded in 2022. As was the case for most of the year, the riskiest loans outperformed in December. ![]() Advancers led decliners by a rate of 8.2:1 in the month, sending the share of the secondary market above par to 29%, from 3% at the beginning of the year, with 69% bid at 98 or higher. The index’s average price advanced across every trading session in December, ending the month up 93 basis points to 96.23, the highest level since 2Q22. However, market value gains were lower compared to other years that closed with loan returns in the double digits. The average price of the LLI ended the year up 379 basis points for a market value return of 3.46%. For loans, higher base rates propelled the asset class’s share of income return to 9.54% – the highest levels on record – for over 70% share of annual total return. Robust economic growth combined with lower inflation assuaged credit concerns and underlined performance across markets last year. Investment-grade bonds also rallied in the final months of the year to end the year at 8.52%, while the S&P 500 was up 4.54% in December to end 2023 up 24.23%. The outperformance relative to loans is notable given the high-yield asset class trailed loans for most of the year. High-yield bond prices jumped 6.6 points in the last two months of the year, pushing annual returns to 13.45%, per Bloomberg Indices. Returns were positive in nine out of 12 months last year, bookended by a return of 1.65% in December and 2.89% across the last two months of the year, as risk assets rallied on the expectation the Fed would soon begin to cut interest rates. JanuLoans returned 13.32% in 2023, the best performance since the Global Financial Crisis and the second highest annual return since the Morningstar/LSTA Leverage Loan Index (LLI) was introduced in 1997. ![]()
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