Leveraged finance (LevFin) issuance across the US and European institutional loan and high-yield (HY) bond markets soared to USD 1.86trn in 2024 year-to-date (YTD), surpassing the previous record of USD 1.60trn from 2021. LevFin markets roared back into action this year as strong investor demand and tighter spreads created supportive conditions for issuance.

However, the record-breaking gross volume was largely buoyed by a deluge of refinancing and repricing activity. New money supply, nevertheless, registered a modest uptick from last year’s lows as an increase in dividend recapitalisation and migration of borrowers from private credit to the syndicated markets replenished part of the missing volume historically supplied by merger & acquisition (M&A) and leveraged buyout (LBO) deals.

LevFin markets delivered another year of strong performance to investors, with total returns climbing above 8% YTD across the US and European HY bond and leveraged loan indices. The markets were armed with a lot of firepower as the two asset classes attracted large inflows of capital, while collateralised loan obligation (CLO) issuance in 2024 broke through all-time records.

Although there were brief bouts of volatility surrounding geopolitical and economic events during the year, cooling inflation, easing of monetary policies and the relative resilience of economic growth and corporate fundamentals on both sides of the Atlantic fuelled investors’ appetite for risk assets.

Donald Trump’s win in the US Presidential election in November sparked a strong rally across HY bond and leveraged loan markets in the US on the prospect that the former president’s return to the White House will unleash deregulation and M&A activity, lower corporate taxes, and higher economic growth.

Although the US election result initially had a positive effect on Europe in terms of credit spreads and equity performance, Europe and particularly its automotive sector could face headwinds from Trump’s promise to impose across-the-board tariffs on all imports coming into the US.

The European Central Bank (ECB) and the Federal Reserve (Fed) delivered 100 basis points (bps) in interest rate cuts this year, lowering the respective rates to 3% and 4.25%-4.50%. Although market participants expect additional rate cuts in the coming year, which could in turn stimulate greater M&A activity, the US and European path of inflation and monetary policy could diverge next year. At its last meeting of the year on 18 December, the Fed adopted a more cautious tone regarding inflation and the pace of rate cuts in 2025.

Loan issuance smashes records as HY bonds post strong revival

The leveraged loan markets on both sides of the Atlantic had a record year in terms of gross issuance, which was boosted by several repricing waves throughout 2024. The HY bond markets made a strong recovery from the lows of 2022 and 2023 but lagged the all-time highs of 2021.