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Chart of the Week: Bank Loans Are the Tortoise, Not the Hare

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Bank loans are designed to be steady returners with low volatility

The global financial crisis did not change the nature of bank loans.

Bank loans were specifically designed by bankers to resist the forces that drive volatility in most other asset classes. Bankers designed bank loans to reduce the volatility that comes along with changes in interest rates and company values, so they insisted that loans have floating coupons and that they be senior and secured.

History shows they did a very good job. 2008 was the only year since loan indices began when loans had a negative return. 2008's performance was not driven by credit quality but by a global leverage unwind that created many forced sellers and far fewer buyers in a very short period. When the selling and rebound were finished, loans resumed their historically typical role: to be the tortoise rather than the hare.

 

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This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. This information is subject to change at any time without notice.

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About the Authors

Loomis Sayles analysts are career professionals who offer deep knowledge and experience in a diversity of global asset classes and market sectors. These dedicated experts provide the insight essential to supporting our portfolio management teams across a wide range of investment strategies.

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