Investing Ideas

What leveraged loans can do for your portfolio

How the high starting yields of loans could add value even if rates continue to move lower.

By: David Hays Brian Donnelly Nils Bierkamp Jonathan Cain

Updated: 7/1/2025

Key Takeaways

Leveraged loans offer relatively low interest-rate-sensitivity and have generated a positive return for shareholders in 26 of the past 28 years.
It’s true that loans offer floating-rate coupons, which tend to move along with the fed funds rate, although we believe that trying to time the market in this asset class based on what the Fed might do could be a mistake.
Starting yields for loans as of the second quarter of 2025 are the highest of any major fixed income sector at about 8.5%, providing a cushion against potential price declines.
New-issue activity for collateralized loan obligations (CLOs) is running at a fast historic pace so far in 2025 (possibly topping the 2024 record), which we believe provides solid support for the leveraged loan market.

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