March 2024: Outlook and Implementation
► With a 0.85% gain in March, loans finished the quarter up 2.46%, with nearly all the return attributable to coupon as rates stay higher for longer. Loans are on track with our full-year return forecast of 7-8%.
► Data continues to strengthen the argument for a soft landing, and the “last mile” of inflation is proving to be sticky, resulting in delayed expectations around the timing and velocity of the rate cut cycle.
► The technical continues to be supportive. While M&A activity is increasing, the lack of meaningful supply in the face of demand from retail and institutional investors has resulted in above-par loan prices, allowing borrowers to reprice and refinance existing debt. Capital markets are open for all risk cohorts.
► At a 9.8% yield to maturity, loans retain their coupon advantage, especially as rates stay higher for longer and the economy moves closer toward a soft landing or avoiding a recession altogether.
►Risk has outperformed quality due to higher coupons and investor appetite for discounted loans. BBs returned 0.80%, B risk returned 0.87%, and CCCs returned 1.01%.
►The telecom and media industries underperformed. Cable company Altice's aggressive announcements suggesting an out-of-court restructuring of its looming maturities negatively impacted both its secured loans and unsecured bonds.