Leveraged Loans: Looking Beyond TIPS for Inflation Protection

Brian Donnelly, Jonathan Cain and David Hays

Floating-rate coupons, minimal duration exposure, and historically low default rates have helped leveraged loans preserve purchasing power through a variety of inflationary environments.

Key Takeaways

• Leveraged loans have been the most consistent inflation-fighting asset since 1992, based on the percentage of the time their 12-month rolling returns have exceeded CPI inflation.
• The combination of very low duration and floating-rate coupons may offer more complete protection against rising inflation than other asset classes.
• Leveraged loans have produced a positive calendar-year return in 27 of the past 29 years.
• Loan defaults are a risk for this asset class, although the default rate for leveraged loans has remained historically low in recent years.

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