Leveraged loans are delivering the smallest returns at the start of a year since 2008 as the Federal Reserve and other regulators warn that the $561 billion market may have become too frothy.
Speculative-grade loans have gained 2.1 percent in 2013, compared with an average of 5.6 percent in the same period the last four years, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index. JPMorgan Chase & Co. is forecasting the debt will return from 5 percent to 6 percent in 2013, or about half the gains seen last year.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 1.5 to 203 at 10:20 a.m. in London. In the Asia-Pacific region, the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan climbed 2 to 121.5.
Borrowers obtained $182.7 billion in loans this year from non-bank lenders, more than half of what was issued in all of 2012, according to JPMorgan. About 47 percent of these loans were used to reduce borrowing costs.