The global financial crisis did not change the nature of bank loans.
Bank loans were specifically designed by bankers to resist the forces that drive volatility in most other asset classes. Bankers designed bank loans to reduce the volatility that comes along with changes in interest rates and company values, so they insisted that loans have floating coupons and that they be senior and secured.
History shows they did a very good job. 2008 was the only year since loan indices began when loans had a negative return. The 2008’s performance was not driven by credit quality but by a global leverage unwind that created many forced sellers and far fewer buyers in a very short period.
When the selling and rebound were finished, loans resumed their historically typical role: to be the tortoise rather than the hare.
Cheryl Stober is a vice president and a product manager for the bank loan team at Loomis, Sayles & Company, a subsidiary of Natixis Global AM
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