Floating rate bank loans are enjoying a profitable 2015. Coming into 2015, floating rate loans were one of the few bond sectors where average prices were meaningfully below par, at $95.39 for the S&P/LSTA index. Bargain shopping, particularly among institutional investors, has bid prices higher to $96.54 as of 5/15, leading to a total return including income of 3.2%.
We believe floating rate bank loans have continued modest capital appreciation potential this year, provided the economy remains firm and the Federal Reserve remains on track to raise interest rates. In the meantime, we expect continued attractive income (fund yields typically range between 4-5%), and perhaps even rising income if the Fed is assertive in raising rates.