Credit yields trump earnings yield on equities

Yields on leveraged loans are currently reaching 10% and remain materially higher than yields on equities. Since 2022 the loan investors have been benefiting from rising rates, which translated into increasing income via quarterly benchmark rate resets. With any new loan refinancings, investors are now also benefiting from increased credit spreads, as lenders incorporate higher risk premia.

This is in stark contrast with equity market yields, which despite the March volatility remained at around 5% (7.5% when adjusted for inflation expectations). Such yields offer little premium over credit risk-free assets, such as a 2-year treasury notes, yielding around 4%.

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