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Januar 18, 2022

Loans take center stage as inflation threat grows for 2022

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Januar 18, 2022

Loans take center stage as inflation threat grows for 2022


Insight Article

Loans take center stage as inflation threat grows for 2022

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Januar 18, 2022

 
 
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In a year when concerns over tightened monetary policy, rising rates and inflation periodically wracked the markets, loans outperformed the Bloomberg Aggregate Index by 6.28 points, gaining 4.70% as bonds lost 1.58%.”
 
 
 

Boston – For the floating-rate loan asset class, 2021 has been a year of superlatives, with any number of metrics at or near record levels, like issuance volume, demand, absence of defaults, and total loans outstanding. For us, the most important message from this year’s buoyant market is that loans have been living up to the expectations of both investors and issuers.

 In 2022, we expect much of the same positive dynamics to prevail, against a backdrop of generally positive credit conditions. While recent news of the Omicron variant highlights how the pandemic remains a major economic variable, we don’t believe it will overcome the sweeping economic tailwinds and ongoing policy support.

Inflation concerns are also likely to persist in 2022, which moves loans — and their floating-rate capability — onto center stage for investors seeking to hedge the possibility of rising rates.

 
 
Ralph Hinckley
Ralph Hinckley
Portfolio Manager - Eaton Vance Management
 
 
Andrew Sveen
Andrew Sveen
Co-Director of Bank Loans Portfolio Manager - Eaton Vance Management
 
 
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Floating-Rate-Loans
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Portfolio Manager Ralph Hinckley believes credit fundamentals are sound, and inflationary environments tend to signal higher interest rates, which tend to benefit loans. After a strong run in 2021, loan returns in 2022 are likely to come from current income, in his view.
 
 
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Risk Considerations

Investing entails risks and there can be no assurance that any strategy will achieve profits or avoid incurring losses.

Floating-Rate Loans – Loans are traded in a private, unregulated inter-dealer or inter-bank resale market and are generally subject to contractual restrictions that must be satisfied before a loan can be bought or sold. These restrictions may impede the strategy’s ability to buy or sell loans (thus affecting their liquidity) and may negatively impact the transaction price. It may take longer than seven days for transactions in loans to settle. Due to the possibility of an extended loan settlement process, the strategy may hold cash, sell investments or temporarily borrow from banks or other lenders to meet short- term liquidity needs. Loans may be structured such that they are not securities under securities law, and in the event of fraud or misrepresentation by a borrower, lenders may not have the protection of the anti-fraud provisions of the federal securities laws. Loans are also subject to risks associated with other types of income like high-yield bonds described above. Investments in foreign instruments or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical, currency exchange rates or other conditions. Changes in the value of investments entered for hedging purposes may not match those of the position being hedged.

Important Information

Date-of Data: December 27, 2021

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