The US leveraged loan market has shown remarkable composure following escalations in the Middle East, with key price benchmarks holding steady and investors largely dismissing broader geopolitical implications. The average bid for the overall US leveraged loan market was 97.34 on 25 June, virtually unchanged from 97.18 on 16 June; similarly, the LPC 100 stood at 98.06, a slight uptick from 97.90 over the same period.
Market participants cite the absence of direct effects on US corporates and interpret Iran’s retaliation as measured, leaving technicals and deal flow as the primary market drivers. As one analyst commented, pricing geopolitical risk is challenging—and investors appear to be choosing their positions based on expected impact on balance sheets.
Events elsewhere in April, such as sweeping tariffs, once rattled the syndicated loan market, halting activity and dragging average bids down to 95.84 from 98.22 earlier in the year. But current conditions paint a contrasting picture: secondary loan prices are resilient, and institutional issuance has picked up, surpassing US$109.9bn in the quarter even after April’s freeze.
Delving deeper into credit tiers reveals nuance. Loans in the lower 20th percentile saw week-on-week drops of about 10 points, while mid‑to‑top tier debt remained stable. Loans in aerospace, defence, and leasing sectors are trading near par, with bids between 99.875 and 100.375, benefiting from elevated attention to defence-linked assets. By contrast, energy names have lagged, trading down one to two points until news of a ceasefire helped stabilise that segment.
Primary market momentum remains robust. Sixteen or more broadly syndicated deals launched in the week of 23 June, including the relaunch of ITG Communications’ US$540m first-lien term loan. That issuance, aimed at funding a shareholder distribution postponed in April, repriced at 475bp over SOFR with a 0 per cent floor and 98 OID—mirroring its earlier terms.
Amid this backdrop, attention turns to prospective Federal Reserve rate cuts. Federal Reserve Chair Jerome Powell’s recent testimony emphasised a likelier move in September rather than July, which market analysts believe could reduce borrowing costs and support further deal activity. One portfolio manager noted that such easing would benefit overleveraged issuers contending with rising interest burdens.
Still, voices from academia warn of deeper structural issues. A study from the University of Bath highlights systemic risks arising from underpriced leveraged loans, particularly among non‑bank lenders issuing covenant‑lite products. With default rates at their highest in four years—7.2 per cent to October 2024—researchers suggest that weakened risk premiums and rising securitisation heighten macro‑prudential concerns. They argue that shadow banks and opaque loan structures may fuel unseen vulnerabilities should stress propagate across leveraged borrowers.
Despite these warnings, the current market display indicates short‑term confidence. Investors are focusing on deal cadence, technical liquidity, and monetary policy outlook rather than geopolitical shock risk. Secondary prices remain robust, and primary issuance continues apace—even in the shadow of Middle East tensions that might otherwise unsettle global credit markets.
