The longest economic expansion in U.S. history came to an abrupt end in March, upending a record credit cycle during which the U.S. leveraged loan asset class doubled in size and became a dominant player in the capital markets.
Putting it mildly, the loan market collapse and volatility were unprecedented. The S&P/LSTA Leveraged Loan Index plunged by 12.37% in March, the second steepest monthly decline in the 23-year history of the Index. Before COVID-19 swept the globe, the three largest losses for loans occurred during the global financial crisis following Lehman Brothers’ bankruptcy filing in September 2008.
Prices in the usually staid loan market gyrated wildly in March. On March 18, the Index declined by 3.74%, the largest daily loss on record. In fact, in the history of the Index, there are only four instances of daily losses exceeding 3% – all of them in March 2020. As a result, secondary market volatility – as measured by the standard deviation of daily returns – spiked to all-time highs.
To read more on the impact coronavirus has had on the leveraged finance market and how it compares to the 2008 crisis, read a portion of LCD's Q1 2020 Market Review here.
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