The Credit Face-Off: Do Leveraged Loans, High Yield Bonds, or Private Debt Offer the Best Value?
October 25, 2022 | Anastasia Amoroso | iCapital
While leveraged loans have far outshined all other fixed income assets this year, we explore why now might be the right time for investors to re-allocate from publicly traded leveraged loans to a barbell of high yield and private credit.
Another week brings another reset higher in Fed fund rate (FFR) expectations. Fed policy has been the driver of markets this year and effectively set the hurdle rate investments need to overcome to prove attractive to investors. At present, the expected FFR by Q1 ’23 is now approaching 5% (4.96% to be exact), up from 4.5% two weeks ago.1 As long as recession uncertainty is swirling and dampening the outlook for stocks, for investors it’s all about income and getting paid while you wait. So where can investors still get cash-beating income returns? With high yield, leveraged loans, and private credit all yielding in the range of 9-11%,2 the question remains – which one is best? Leveraged loans have far outshined all other fixed income assets this year, but in this week’s commentary, we explore why now might be the right time to re-allocate from publicly traded leveraged loans to a barbell of high yield and private credit.
