Fixed Income Chart

Want Protection Against Rising Rates? Think Beyond Loans

31 January 2017

1 min read

What You Don’t Know About High-Yield Loans Can Hurt You

Past performance and historical analysis do not guarantee future results.
Left display as of December 12, 2016; right display as of December 31, 2016
*US High-Yield Bonds are represented by Bloomberg Barclays US Corporate High-Yield Bond 2% Issuer Capped; US Short-Duration High-Yield Bonds by Bloomberg Barclays US Corporate High-Yield Bond1–5 Year 2% Issuer Capped and US High-Yield Bank Loans by the Credit Suisse Leveraged Loans Index. An investor cannot invest directly in an index, andhe unmanaged index does not reflect fees and expenses associated with the active management of a portfolio.
Source: Bloomberg Barclays, Credit Suisse, J.P. Morgan, Morningstar and AB

Investors tend to think of floating-rate bank loans as an antidote to rising interest rates. It ain’t necessarily so. The problem: those loan coupons only float if LIBOR exceeds a certain threshold. But after a short initial waiting period, issuers can refinance their loans at will.

That’s what’s been happening lately. With nearly 70% of loans trading above par in December—the result of strong investor demand—issuers don’t have to wait for the coupons to rise. They can simply take out new loans at better rates, leaving investors with lower-yielding assets than they started with. This is partly why high-yield bonds have consistently outperformed loans.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

This is a marketing communication. This information is provided by AllianceBernstein (Luxembourg) S.à r.l. Société à responsabilité limitée, R.C.S. Luxembourg B 34 305, 2-4, rue Eugène Ruppert, L-2453 Luxembourg. Authorised in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier (CSSF). It is provided for informational purposes only and does not constitute investment advice or an invitation to purchase any security or other investment. The views and opinions expressed are based on our internal forecasts and should not be relied upon as an indication of future market performance. The value of investments in any of the Funds can go down as well as up and investors may not get back the full amount invested. Past performance does not guarantee future results.

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