Buffering Fixed Income with Bank Loans

Loomis Sayles examines how a flexible bank loans strategy may help lessen the impact of rising rates in fixed income portfolios.

  • Bank loans are variable-rate instruments, which means that when interest rates increase, so do payments to lenders – which can be translated to investors.
  • Bank loans have the potential to help manage interest rate risk in investment grade portfolios and principal risk in high yield fixed income portfolios.
  • While high yield fixed income investments and bank loans can generate similar yield for portfolios, many high yield fixed income investments are junior, unsecured loans while many bank loans are senior, secured loans.
The views and opinions expressed represent the subjective views of the contributors as of May 17, 2018. They are subject to change at any time based on market and other conditions. There can be no assurance that developments will transpire as forecasted. This material is provided for informational purposes only and should not be construed as investment advice.

Important Information
All investing involves risk, including the risk of loss. There is no assurance that any investment will meet its performance objective or that losses will be avoided. The ability of an actively managed investment to achieve its objective will depend on the effectiveness of the portfolio manager.

Floating-rate loans are often lower-quality debt securities and may involve greater risk of price changes and greater risk of default on interest and principal payments. The market for floating-rate loans is largely unregulated and these assets usually do not trade on an organized exchange. As a result, floating-rate loans can be relatively illiquid and hard to value.

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