Volatility in the leveraged loan and high yield bond markets have spiked in the last two weeks as fears around the coronavirus have intensified. The equity markets have been particularly volatile across regions as the expected impact on the global economy has grown. Declines in the high yield bond market have outpaced those in the leveraged loan market, and bonds have shown a higher degree of volatility, with a greater propensity to bounce back and forth between losses and gains on a daily basis.

In the secondary loan market, both the European and US regions have posted declines, though US volatility has been more pronounced. European institutional term loan prices declined by 136bps on average to 97.42 in February and the par-plus share tumbled to 11% from 60%. The declines have continued in the first few days of March, with prices declining another 63bps through 5 March and the par-plus share falling further to 2%. In comparison, US term loan prices are off 236bps from their recent high.

Some investors were not overly surprised with the recent pullback in prices, with one loan investor stating “you could have made the case for a healthy pullback in the market for risky assets. In the debt markets, valuations are stretched, spreads are tight, LBO multiples are high. Every place you look you see toppy kinds of things so a healthy pullback shouldn’t come as any great surprise.”

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Colm (C.J.) Doherty Global Head of Primary Market Analysis Debtwire

Colm Doherty is Debtwire’s Global Head of Primary Market Analysis. He is responsible for leading the production of primary market analysis and reports focused on the leveraged loan and high yield bond markets. Prior to joining Debtwire, Colm was Director of Analysis at Thomson Reuters LPC covering leveraged loans, CLOs and high yield bonds.

Colm has a B.A. in Economics & Legal Science from National University of Ireland Galway and an MSc. in Accounting & Finance from Ulster University.