Anchored by Income: The Resilience of Broadly Syndicated Loans

Broadly syndicated loans merit a strategic portfolio allocation because contractual income, stable institutional demand, low duration and supportive fundamentals have produced resilient risk-adjusted returns.

• Loan spreads have generally ranged between 300 and 400 basis points over the past decade, while floating-rate coupon income has limited the impact of price volatility.
• Over the past 25 years, loans recorded only three negative calendar years in the U.S. and four in Europe, highlighting the support provided by income.
• Collateralized loan obligations account for approximately 60–70% of today’s loan investor base, creating relatively stable, long-term institutional demand; global loan volatility over the last 10 years was about two-thirds that of global high-yield bonds and one-third that of equities.
• Fundamentals remain broadly supportive: less than 3% of loans mature in 2027, the share maturing in 2028 has fallen to approximately 14% from nearly 30% a year earlier, and expected defaults are around 2.0% to 2.5% over the next 12 to 24 months.
• Triple-C and below-rated loans represent approximately 7% of the U.S. market and 4% of the European market, although dispersion among lower-rated borrowers increases the importance of credit selection.

Takeaway: Barings sees senior secured, floating-rate loans as attractive in a volatile macroeconomic environment, but investors must account for below-investment-grade credit, liquidity and market risks, including potential stress among software issuers exposed to AI-related disruption.