U.S. Leveraged Loan Market: Plenty of Risk, But Not Systemic

We see risks rising in U.S. leveraged loans, but we also see limited implications for broader financial markets and the economy.

There has been a great deal of talk about the systemic risk embedded in the U.S. leveraged loan market. At PIMCO, we believe many concerns regarding the loan market are largely misunderstood and overstated, and our analysis aims to address the red flags many are waving. The leveraged loan market has become riskier, but we do not see it as a threat to the financial system.

A brief look back

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All investments contain risk and may lose value. Leverage loans expose an investor to heightened credit risk, call risk, settlement risk and liquidity risk. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

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