The US syndicated loan market returned 0.93% in August, exceeding July’s performance as software loans rebounded to pare the sector’s YTD loss to 2.60% and close the gap with the broader market.
August market highlights:
Loans returned 0.93% in August, according to the Morningstar LSTA US Leveraged Loan Index, the second-best showing in 12 months, led by software issuers.
Performing software loan prices gained 127 bps in August, to 87.73% of par, while non-software loans gained 22 bps, to 97.06.
YTD software returns have narrowed to negative 2.60%; software is the only industry segment with a market-value weight above 1% that is negative for the year. The overall index has gained 3.07% in 2026.
Distressed/stressed paper (loan issues priced below 90) now accounts for 11.18% of the market, down 53 bps from July.
Market technicals: Investor demand for loans increased while supply increased by a lesser amount. There was a $13.3 billion supply shortage for the month.
Loan returns boosted by software recovery; IT Services tags along
In August, US leveraged loans continued July’s strong momentum, posting the second-best return in the past year, at 0.93%, per the Morningstar LSTA US Leveraged Loan Index. The month’s returns were led by the software and IT services sectors, which gained 2.24% and 2.13%, respectively, on index weights of 11.2% and 3.4%. Containers & packaging also cleared 2%, returning 2.05%, with its 2.29% market-value index weight. Insurance was the only sector to generate a monthly return in the red, and even that was only negative 0.19%.
Year-to-date, the leveraged loan asset class has returned 3.07%. The YTD market-value return remains negative, however, at -1.71%, while the interest-return component is 4.79%. Software’s 2.24% total return in August narrowed its YTD loss to 2.60%, leaving it the sole sector with market-value weight above 1% that is still negative for the year. Building products, with a weight of 0.9%, also remains negative on a YTD basis, with a -5.17% return.
The market-value component of the return for loans was positive 0.32% in August, up from a gain of 0.19% in July — enough, combined, to offset June’s 0.51% loss. February’s 1.32% decline remains the weakest monthly market-value reading of the year.
The index’s weighted average bid rose 41 bps in August, to 95.58, though it remains 106 bps below where it started the year.
Software claws back
The tech sector, concentrated in software, drove the month’s overall positive loan returns. Performing software loans improved 127 bps over the month, to 87.73, continuing to recover from a sell-off that began in January. Non-software performing loan bids edged higher in August, advancing 22 bps, to 97.06.
