In this episode of the Last Tranche, Mike Nechamkin, chief investment officer and senior portfolio manager at Octagon Credit Investors, discusses the reasons behind the recovery in loan prices in recent weeks.

He says that there has been a fair amount of dispersion in US loans. Although the US loan index was down 400 basis points at the end of June, smaller borrowers (loans of less than $500 million) outperformed, dropping about 300bp compared to roughly 540bp for the largest loan issuers.

CLO managers seeking to print and sprint were able to pick up some of these larger loans (which had dropped only because they were the most liquid) at attractive levels. Print and sprint, says Nechamkin, is no longer a niche strategy as it was several years ago. A few managers employed this tactic in 2020 and its use has been more widespread this year.

Nechamkin says the market is still pricing in risk and managers are still defensive in their investing, but both the technical and fundamental picture has improved over the last month.