The average bid of LCD’s flow-name loan composite plunged a staggering 201 bps in today’s reading to 94.89% of par, from 96.90 on June 9. Today’s decline is the largest week-over-week drop for the composite since the depths of the Covid-19-driven market dislocation in March 2020 when it fell 8.80 points in the March 19, 2020 reading. The average bid of the composite is now at its lowest level since reaching 94.60 in the Aug. 6, 2020 reading.
Like other risk assets, the loan market reacted negatively to last Friday’s higher-than-expected inflation print and growing recession prospects. The Federal Reserve announced following its meeting this week that it is raising its target rate by 75 bps, the largest hike since 1994, as it emphasized its commitment to controlling inflation.
All 15 names in the sample moved lower this week by at least a point, with six loans slipping by two points or more and two loans falling more than three points. Leading the way this week was Zayo Group’s term loan B due March 2027, which fell to a 91/92 level, from 94.125/94.625 last week, and CenturyLink’s term loan B due March 2027, which slipped more than three points from last week, to a 90.75/91.75 level.
The decline in the flow-name loan composite this week outpaced that of the broader S&P/LSTA LL 100, which dropped 169 bps, to an average bid of 93.48, from 95.17 on June 8. The index hit an average bid of 93.36 on June 14, down significantly from its recent high last Wednesday, though still well above the recent low of 92.70 on May 25.
By ratings, here’s how bids and the discounted spreads stand:
- 94.86/L+439 to a four-year call for the 13 flow names rated B+ or higher by S&P; STM in this category is L+413.
Loans vs. bonds
The average bid of LCD’s flow-name high-yield bonds plummeted 395 bps, to 85.73% of par, yielding 8.12%. The gap between the bond yield and discounted loan yield to maturity stands at 205 bps.
- June: The average flow-name loan decreased 29 bps from the final May reading of 95.18.
- Year to date: The average flow-name loan decreased 434 bps from the final 2021 reading of 99.23.
- Bids rise: The average bid of the 15 flow names decreased 201 bps, to 94.89% of par.
- Bid/ask spreads fall: The average bid/ask spread increased 21 bps, to 95 bps.
- Spreads tighten: The average spread to maturity—based on axe levels and stated amortization schedules—increased 59 bps, to L+429.