US leveraged loans recovered in April with 1.29% returns, but AI disruption in software and geopolitical risks in the Middle East suggest limited price upside. Yields remain attractive at 8.6% in the US, with carry expected to drive performance as central banks delay rate cuts.
Key Takeaways
- 1.US leveraged loans saw a strong rebound in April with a 1.29% return, though dispersion is widening due to AI-related disruption risks, particularly in the software sector.
- 2.Carry is expected to be the primary driver of returns over the next 6-12 months as the Fed is likely to delay its easing cycle due to inflation and energy price uncertainty.
- 3.Default rates are expected to remain elevated, projected to finish 2026 around 3%, with software loans facing a significant maturity wall by 2028.
Table of Contents
- Central scenario
- Upside scenario
- Downside scenario
- Appendix
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Authors
Antoine GeillerCarolina CorvalanFrederick Mellors
Securities
Morningstar LSTA US Leveraged Loan Index
Themes
AI Disruption in SoftwareGeopolitical Energy RiskYield/Carry focus
Regions
North AmericaEuropeUnited StatesIran