Leveraged loans have overtaken U.S. high-yield bonds in market size, reaching $1.5tn, yet remain underexplored by some investors. Marco Pouw, Director of Fixed Income Indices at S&P Dow Jones, explained that these loans, often issued to highly leveraged or credit-challenged firms, offer attractive yields and structural protections, such as collateral over corporate assets. Over decades, the S&P UBS Leveraged Loan Index returned 68%, narrowly trailing the iBoxx Global Developed Markets High Yield Index.

Growth in the leveraged loan market has been driven by collateralized loan obligations (CLOs), which hold $1tn in U.S. loans, and by ETFs and mutual funds broadening access to financial advisors and individuals. Private credit has also expanded, with direct lending now competing with traditional syndicated loans. This evolution provides borrowers with flexible financing but complicates market transparency.

Pouw highlighted the role of indices in addressing this opacity. The S&P UBS Leveraged Loan Indices track nearly 2,000 loans, providing daily performance in six currencies, as well as yield and discount margin data. Access to comprehensive S&P Global data ensures lifecycle events, including coupon fixes, redemptions, and restructurings, are incorporated despite loans being private instruments.

Indexing differentiates through breadth, targeted solutions, and historical depth. From the broad USD and Western European indices to the USD Liquid Leveraged Loan Index, S&P Dow Jones enables consistent benchmarking and transparency. For investors navigating a complex, evolving $1.5tn segment, these tools offer a structured lens on an otherwise opaque market.

Source: Video - Understanding and Tracking Leveraged Loans