Loans performed well, while HY bonds faced some headwinds

Leveraged loans held steady during the risk-off mode in the 2nd half of September. While US high yield bonds were negatively affected by higher trending interest rates and falling equity markets, leveraged loans benefitted from their floating rate feature. In addition, the robust performance of leveraged loans was also driven by strong demand from institutional investors and robust CLO primary issuance.

Despite the robust September performance and narrowing spreads of leveraged loans, they still offer a similar credit spread and only a slightly lower YTM as compared to high yield bonds.

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