Mike Hession
Hasan Halim
Bank loan market volatility – specifically in leveraged loans and broadly syndicated loans (BSLs) – is increasing. The recent rise in geopolitical risk, worries about the impact of artificial intelligence (AI) on technology companies, and fears of an AI bubble are causing an increase in trading activity and price swings. Economic concerns – including a potential rise in inflation and reduced growth – is also weighing on the bank loan market, which fears a rise in defaults.
While in some ways bank loans are favoured by institutional investors in circumstances like the present ones – thanks to their floating rate nature and their senior position in the capital structure – recent volatility requires a more active approach to managing bank loan investments. In times of uncertainty, it’s essential to have trusted valuations for bank loans being held in portfolios and in collateralised loan obligations (CLOs).
Loan prices softening
What began as a solid start to the new year for the leveraged loan market unravelled by the end of January. Solid new issuance – including a surge in repricing – with over 50% of the US loan universe trading above par, and expectations of what appeared to be a favourable M&A backdrop, gave way to concerns over AI and the negative impact it could have on certain companies in the technology sector, specifically in the software industry.
Downward pricing pressure began in the technology space but spread across other industries into February and March. In addition to AI, concerns about business development companies also known as “ BDCs” liquidity and private credit, as well as geopolitical issues, also rattled investors. New issuance over the February and March period, including repricing, slowed dramatically.
The LSEG European Leveraged 40 composite Index fell by 170 basis points during Q1 2026. The worst performance for the Euro Index occurred in March, reaching its lowest level since April 2025’s tariff wars by month end and ensuring negative returns in each of the months during the quarter.
Meanwhile, the LSEG LPC 100 (North America) composite index fell just over 150 basis points during the first quarter. February marked the worst monthly decline during the period, falling 130 basis points. Loans priced at par value or above as a percentage of the overall US market fell below 15% by early March – this market was well above 50% at the start of the year. There was some relief in the US market towards the end of the quarter, as loan prices showed some stability and generated a positive price performance during March for the LPC 100 index, while the overall US loan market was basically flat during the month.
Currently, we are starting to see some positive signs in the loans space, as performance thus far in April is positive for both the EMEA and AMERS regions, and headlines indicating new issues and repricing are starting to pick up.
Bank loans causing CLO price volatility
Bank loan market price fluctuations are also driving some of the volatility in the CLO market, as bank loans are a major ingredient of CLOs. This trend is emerging as investors begin to pay more attention to fundamental factors, CLO manager behaviour and data and analytics in managing their CLO portfolios.
In this environment, having pricing insight into the elements that make up an individual CLO is essential. Our evaluated loan pricing is fed into the LSEG LPC Collateral platform, which provides transparency for investment managers into all the underlying loan assets in a CLO for both the US and EMEA markets. With this ability to look through to specific CLO holdings, investment managers can understand at a granular level the loans being held that are impacted by recent market trends. This can also be used to help understand the exposures in a CLO exchange traded fund (ETF), which are growing in popularity.
Bringing loan insights to life
LSEG offers the industry’s highest quality suite of bank loan pricing solutions for institutional investors. These include:
- LSEG Pricing Service – This is the industry’s most robust and comprehensive source of evaluated pricing for bank loans. The LSEG team produce evaluated prices for over 3,500 bank loans globally. These prices are anchored in deep market knowledge and decades of experience in pricing bank loans, alongside strong trader relationships around the world. LSEG’s depth and breadth of data provides a valuable resource for back testing, model validation, strategy development and research. The team undergoes an annual SOC 1 Type 2 audit to future ensure the highest quality.
- Morningstar LSTA Leveraged Loan Index – LSEG Pricing Service is the official pricing provider for the Morningstar LSTA Leveraged Loan Index. The collaboration between the Loan Syndications and Trading Association (LSTA) and LSEG goes back two decades, with LSEG evaluated pricing being benchmarked against actual trade activity for member firms for less liquid loans.
Other solutions include LSEG LPC Collateral and LSEG Loan Connector, which is LSEG LPC’s web-based loan information platform. It is the market-leading source of comprehensive and real-time and historical news, data and analysis on the global loan markets. It includes access to DealScan, the world’s number one source for comprehensive, reliable historical deal information on the global loan markets.
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