There are many opportunities in fixed income in the current environment, with bank loans looking uniquely attractive.
Bond yields are currently sitting at relatively high levels, which makes bonds look attractive in the current environment despite tight spreads. Fixed income investments are supported by strong fundamentals, which helps explain extremely tight credit spreads in both investment grade and high yield credit, according to Invesco chief global market strategist Kristina Hooper.
Bank loans are another compelling opportunity in fixed income, and one that many investors may be overlooking. For one, they present attractive diversification properties. Additionally, they tend to have similar risk as investment grade credit but offer greater return potential due to the high current yield.
Furthermore, bank loans have been less sensitive to recent interest rate volatility compared to other fixed income asset classes due to bank loans’ near-zero duration.
Senior bank loans are debt securities issued to a company by a bank or similar financial institution and then repackaged and sold to investors.They have variable interest rates and adjust periodically with the market.
See more: “4 Invesco Fixed Income ETFs for 2025”
How Investors Can Access Bank Loans
Investors can access bank loans via the Invesco Senior Loan ETF (BKLN). BKLN is based on the Morningstar LSTA US Leveraged Loan 100 Index. The ETF’s underlying index tracks the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads, and interest payments, according to Invesco’s website.
BKLN’s distribution rate is 6.8% as of January 8. The fund, which has $9.5 billion in assets under management, has seen considerable investor attention in recent history. BKLN has seen $3.4 billion in net flows over a one-year period, with $2.4 billion in net flows in the past three months.
The Invesco fund is popular as it has been able to provide relatively strong income generation without taking on much interest rate risk. BKLN charges 65 basis points.
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