A favorable investment climate, solid returns across market cycles, and the benefits of floating yields all continue to make leveraged loans an attractive addition to fixed income allocations. Steven Oh, Global Head of Credit and Fixed Income at PineBridge Investments, provides his views on the current state of the loan market and what to expect looking ahead.
Q: Why are loans an attractive asset class in the current environment? A: Leveraged loans have provided strong total returns over the past several years, particularly considering the low rate environment, and we expect the segment to remain a bright spot for fixed income investors for several reasons. First, today’s investment climate remains a constructive, stable backdrop for loan issuers. The outlook for 2017 US GDP growth is in the 2%-3% range¹, with unemployment near long-term lows and the beginning signs of wage growth acceleration. Coverage ratios (EBITDA-capital expenditures/interest) are near all-time highs. The current default rate of 1.36% is well below its historical average and is forecast to increase at a gradual rate.
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