ELLI posts worst return since 2020 in response to Russia-Ukraine conflict

The S&P European Leveraged Loan Index returned negative 0.44% yesterday (excluding currency) following Russia's launch of military operations in neighboring Ukraine; this is the lowest daily return since June 2020, when it reached negative 0.47%.

Yesterday's return brought the month-to-date return in February to negative 1.29% and the year-to-date return to negative 0.94% (excluding currency). If the trend continues and February's returns remain negative on Monday at month-end, this will be the first time the ELLI's monthly return is negative since March 2020.

Daily returns for the ELLI have trended progressively lower throughout the year, with 13 of the 24 days in February so far posting negative returns at an average of negative 0.12%. In January, only six days posted negative returns at an average of negative 0.02%.

The ELLI's weighted average bid fell to 97.30 yesterday, the lowest level the index has been since November 2020. For reference, this level fell to a record low of 78.92 on March 24, 2020, after the COVID-19 pandemic roiled global markets, and in mid-January of this year it climbed to 99.02, exceeding the 2021 high of 98.92. The last time the index breached 99 was in November 2018, and sources told LCD that much of the gain in the opening phase of 2022 came from buyers looking for any source of value from the remaining COVID-19-exposed discounted names.

The market started to turn in February as contagion that started on rate fears in high yield spread to loans. Sources maintain that much of the decline has come from traders marking down their books, though there is real selling as well. "Sell enquiries outnumbered Buy enquiries by two-to-one last week," said one senior banker. "These are not so much from CLOs but multi-strategy accounts looking for other opportunities," he added. There was also little sign of panic yesterday as liquidity dried up across credit markets, leaving bids to "by appointment only," said one manager.