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US and European yields converge

Yields gradually narrowed across the leveraged universe from pandemic-induced spikes in the 6-7% area to a range of 4.4-5.5% by end-2020, and these continued tightening in 1Q21. In the US institutional loan market, the weighted average yield reached its lowest point of 4.1% in 1Q21, with an average margin of 347 basis points (bps). However, margins then started to widen, with the yield climbing to 4.5% in 2Q21. The upward trend subsequently came to a halt, as the average yield slipped back marginally to 4.4% in 3Q-4Q21.


The widening in the European institutional loan market lagged slightly behind, with the weighted average yield continuing to stumble from 3.9% in 1Q21 to 3.8% in 2Q21, as investor demand temporarily outstripped supply. Average European yields then started to converge with the US market, rising to 4.1% in 3Q21 before timing out at 4.3% in 4Q21, with an average margin of 398bps.


In the US HY bond market, the weighted average yield tracked down to 5.2% in 1Q21 from 5.5% in 4Q20, and continued slowing to 5% and 4.8% in subsequent quarters. However, yields then recovered back to 5% in 4Q21.


In Europe, the weighted average HY bond yield slumped from 4.7% in 4Q20 to 3.9% in 1Q-2Q21. Yields then started pacing upward, climbing to 4.3% and 4.7% in the third and fourth quarter, respectively.



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