As the 3rd quarter comes to a close, there has been a significant focus on the uncertainty of the US macroeconomic backdrop and its potential implications for the senior secured bank loan market. Despite these challenges, we see three compelling reasons to consider investing in senior secured loans now. (This is an excerpt from our latest whitepaper, The case for senior loans. For a deep-dive into the sector and our outlook, read the complete paper.
Current income is comprised of two key components—base interest rates (which are expected to stay higher for longer) and credit spreads (which have continued to remain wide). Coupon income for bank loans has been 7.85%, which remains well above the long-term average1. Market expectations are for rates to remain higher for longer, well above pre-2022 levels. Loans have proven to provide consistent, stable income through varying market cycles, including recessionary periods and periods of falling rates.
Loans carry minimal duration risk, with an average duration of approximately 45 days. As a floating-rate asset class, the high base rates have resulted in elevated coupons, thereby enhancing total returns. While coupon rates are projected to decline as the Federal Reserve lowers interest rates, overall interest rates are expected to stabilize at levels significantly higher than those seen over the past decade. In the context of the Fed's planned "recalibration" of interest rate policy, the coupon rate over the next 6-12 months is anticipated to remain above historical averages. As of June 30, 2025, only a single 25 basis point rate cut is expected for the entirety of 2025, which is likely to further boost loan returns for the full year.
Loans have consistently provided some of the best yields in the fixed income market, while also offering downside risk mitigation due to their senior position in the capital structure and being secured by the company's assets. Currently, loan spreads are near historical levels, in contrast to high-yield bond spreads, which are close to all time tights not seen since before the GFC in 2008. This makes loans have an attractive entry point. Additionally, loans offer these high yields without any duration risk. In a recessionary environment, loans provide further downside risk mitigation by being senior, meaning they have the highest priority for repayment in the event of default. Therefore, the senior secured nature of these assets may offer added risk mitigation during economic downturns.
Read the complete whitepaper, The case for senior loans.
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Important information
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Investment risks
Many senior loans are illiquid, meaning that the investors may not be able to sell them quickly at a fair price and/or that the redemptions may be delayed due to illiquidity of the senior loans. The market for illiquid securities is more volatile than the market for liquid securities.
The market for senior loans could be disrupted in the event of an economic downturn or a substantial increase or decrease in interest rates. Senior loans, like most other debt obligations, are subject to the risk of default. The market for senior loans remains less developed in Europe than in the U.S. Accordingly, and despite the development of this market in Europe, the European Senior Loans secondary market is usually not considered as liquid as in the U.S.
The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.
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