U.S. Loan Market Snapshot – September 2026 Update

Monthly US loan market update: September 2026

Loans returned 0.26% during the month, bringing year-to-date returns to 3.42%.¹ The monthly return was comprised of 0.60% coupon income and -0.34% principal movements.¹

In September, leveraged loans outperformed high yield by the widest margin since August 2022 as higher rates favored floating-rate assets.⁴ Despite strong loan issuance, fund inflows and resilient investor demand helped absorb new supply.⁴ However, the percentage of loans trading above par decreased from 42% at the end of August to 28% at the end of September, reflecting both refinancing activity and a more cautious market tone at the end of the month.² Within loans, Bs (0.41%) led the way, followed by BBs (0.18%), while CCCs returned -1.70%.¹ The average price in the loan market ended the month at 94.41, 23bps lower than the prior month’s average price of 94.64.¹ At their current average price, senior secured loans provide a 9.62% yield inclusive of the forward curve.¹

During the month, high yield returned -2.52%, underperforming loans, while investment grade returned -2.72%, also underperforming loans.³

Fundamentals

• The Federal Reserve increased the federal funds rate by 25 basis points in September, citing persistent inflation and a stronger-than-expected economy. Treasury yields rose to multi-year highs as markets reassessed the outlook for inflation, economic growth, and monetary policy.
• Geopolitical tensions in the Middle East intensified during September, contributing to higher oil prices and public market volatility. Escalating US-Iran tensions and concerns regarding the security of key energy transportation routes, including the Strait of Hormuz, supported a higher geopolitical risk premium in energy markets. Investors remained focused on the potential impact of further disruptions on energy costs, inflation, and broader economic activity.
• The trailing 12-month par-weighted default rate declined to 0.55% from 0.87% in the month prior.² The pocket of distress in the market (i.e., the percentage of performing loans trading below $80) increased to 7.05% versus 6.50% in the month prior.² When aggregating out-of-court liability management exercises with payment defaults, the combined default rate by issuer count increased to 2.97% from 2.88% in the month prior.²

Technicals

• M&A financing activity accelerated in September, contributing to the strongest month for net new institutional loan issuance (excluding refinancing and repricing activity) since February 2022.⁴
• CLO volume in September decreased 7% versus August, with gross issuance of $41.6bn across 91 deals, including $27.2bn of refinancings and resets, versus $44.6bn across 98 deals in the prior month. August ranked seventh in terms of average monthly volume and has averaged $19.5bn since 2012.⁴
• Retail mutual funds and ETFs reported $4.7bn of inflows in the month, with ETFs recording inflows of $3.3bn and active managers experiencing inflows of $1.4bn.⁴ This compared to $2.7bn of inflows in August.
• Loan primary activity increased 178% month-over-month in September.⁴ Volumes in September totaled $83.6bn versus $30.1bn in August. This compares to a historical September average of $43.8bn in volume since 2010.⁴ Issuance was comprised of $28.6bn of acquisition financing, $25.6bn of refinancing activity, $25.4bn of repricing activity, $2.8bn for dividend financing, and $1.0bn for general corporate purposes.⁴

Past performance is not a guarantee of future results.

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Market opportunity

September recorded the busiest month for M&A-related loan issuance since 2022, while the syndicated loan market also continued to win share from the private credit market. As shown in Figure 1, acquisition financing activity accelerated sharply during the month. Figure 2 illustrates the growing volume of direct lending facilities being refinanced through the syndicated loan market. These trends may create attractive opportunities for fundamental credit selection as the investable universe expands.

Relative yield

Source: Barclays, S&P UBS, Morningstar, PitchBook Data, Inc., and Bloomberg L.P. as of September 30, 2026. Loan “yield to worst” incorporates the SOFR forward curve. Options adjusted spread provided for the Bloomberg US Aggregate and Corporate Bond Indices and spread to worst provided for loans and high yield.

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1 S&P UBS Leveraged Loan Index as of September 30, 2026.

2 PitchBook Data, Inc. as of September 30, 2026.

3 Bloomberg as of September 30, 2026. High yield represented by Bloomberg US Corporate High Yield Index; investment grade represented by the Bloomberg US Corporate Bond Index.

4 JP Morgan as of September 30, 2026.

About risk

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Many senior loans are illiquid, meaning that the investors may not be able to sell them quickly at a fair price and/or that the redemptions may be delayed due to illiquidity of the senior loans. The market for illiquid securities is more volatile than the market for liquid securities. The market for senior loans could be disrupted in the event of an economic downturn or a substantial increase or decrease in interest rates. Senior loans, like most other debt obligations, are subject to the risk of default.

Important information

This document is intended only for Institutional Investors in the USA. It is not intended for and should not be distributed to, or relied upon, by the public.

All data provided by Invesco unless otherwise noted. All data is in US dollars and as of September 30, 2026, unless otherwise noted. By accepting this document, you consent to communicate with us in English, unless you inform us otherwise.

This document is written, unless otherwise stated, by Invesco professionals. The opinions expressed herein are based upon current market conditions and are subject to change without notice. This document does not form part of any prospectus. This document contains general information only and does not take into account individual objectives, taxation position or financial needs. Nor does this constitute a recommendation of the suitability of any investment strategy for a particular investor. Neither Invesco Ltd. nor any of its member companies guarantee the return of capital, distribution of income or the performance of any fund or strategy. Past performance is not a guide to future returns. This document is not an invitation to subscribe for shares in a fund nor is it to be construed as an offer to buy or sell any financial instruments.

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