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Weekly Market Summary
June 1 to June 5, 2026
Extra Credit*
- US leveraged loans delivered a modest gain in May, with the Morningstar LSTA US Leveraged Loan Index returning 0.51%. While overall performance was stable, underlying market dynamics remained mixed. Technical conditions continued to provide strong support, as a resurgence in repricing activity and recovering CLO issuance contributed to a meaningful supply shortage. At the same time, secondary market prices largely stalled, and the valuation gap between Software credits and the broader loan market widened to record levels amid ongoing concerns about AI related disruption. Issuance volumes improved on the surface, but activity remained highly selective. Higher quality borrowers accounted for the bulk of new deals, while leveraged buyout financing remained subdued.
- The gap between Software loans and the broader leveraged loan market widened further in May. Performing loans outside the Software sector were largely stable, with the weighted average bid declining just three basis points to 96.80 by month end and remaining near the upper end of the range seen since early March. In contrast, Software loans fell 38 basis points during the month to 87.71, extending a selloff that began in late January. At the start of the year, Software and non-Software loans were separated by only about 220 basis points. The gap widened sharply through the first quarter, briefly stabilizing between 800 and 880 basis points during March and early April before resuming its expansion in May. The spread differential exceeded 900 basis points for the first time on May 5, reached as much as 930 basis points during the month, and ended May at 909 basis points, more than four times wider than at the beginning of the year.
- The leveraged loan default rate by amount was largely unchanged in May, increasing by just one basis point to 1.35%. The default rate measured by issuer count moved higher, rising to 1.42% from 1.24% in April. The increase was driven by three new payment defaults during the month, partially offset by the removal of one issuer from the trailing twelve-month default count.
Source: Pitchbook LCD as of 6/3/26.
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*Source: Morningstar®, Bloomberg, Credit Suisse. OAS is Options Adjusted Spread. 4-year discount margin is used for spread for bank loans. Yield quoted is yield-to-worst or equivalent calculation. YTD Low / High for yields are based on end of week and not intraday movements. Indexes and sub-indexes: Investment-grade corporates represented by Bloomberg US Corporate Bond Index. High-yield bonds represented by Bloomberg US Corporate High Yield Index. Bank loans represented by Morningstar LSTA US leveraged Loan Index. The red and green arrows depicted under Yields, Option Adjusted Spreads, and Prices indicate a higher or lower value from the previous week.
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