Brian Chappatta, Columnist

Leveraged Loans Take a Much-Needed Breather

The hottest debt market has cooled off, which is better for investors in the long run.

December 3, 2018 at 10:00 AM UTC

Brian Chappatta is managing editor of Bloomberg News' leveraged finance and distressed debt teams. He was previously managing editor and team leader of its wealth group. Before that he was a Bloomberg Opinion markets and finance columnist and a bonds reporter for Bloomberg News.

Just taking a break.
Photographer: General Photographic Agency/Hulton Archive/Getty Images

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The $1.3 trillion U.S. leveraged-loan market has fallen on hard times after a remarkable year in which the floating-rate debt torched the rest of the fixed-income world. Investors would do well to remember that a bit of short-term pain can yield long-term gains.

Loan funds lost $1.32 billion in the week ended Nov. 28, according to data from Lipper, marking the first back-to-back outflows of more than $1 billion since December 2015. As a result, the market is showing cracks across the board, with the S&P/LSTA Leveraged Loan Price Index falling last week to the lowest in two years. The Invesco Senior Loan exchange-traded fund experienced its steepest drop since September 2014. As Bloomberg News reported last week, the percentage of new deals that had to increase pricing soared earlier this month to the highest of the year, while issuers are pulling offerings at the fastest clip since July.