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Weekly CIO Commentary

Good views from atop the capital stack

Saira Malik
Head of Equities and Fixed Income & Chief Investment Officer, Nuveen
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Bottom line up top:

Investors may want to explore fixed income opportunities to take advantage of elevated yields and attractive total return.
Cio weekly chart 1
A strategic allocation to senior loans may offer significant yield for portfolios.

Portfolio considerations

Among liquid taxable fixed income sectors, senior loans, also known as syndicated loans, are both the highest-yielding (7.93%) and least volatile, as measured by standard deviation of returns (Figure 2). Their floating rate structure makes them less susceptible to interest rate volatility, and thus a source of potentially attractive risk-adjusted returns. A strategic allocation to senior loans has historically proven beneficial to diversified portfolios. Based on positive fund flows into the asset class this year, investors are taking notice.

We continue to see value in higher-quality loans, which are currently yielding 6.5%-8%. But the opportunity doesn’t stop there. A large cohort of loans ($225 billion in total) is trading below par at $95, with a median price of $85 and yield to maturity (3 years) of approximately 16%. These levels offer significant yield and price appreciation potential. Achieving positive outcomes for investors within this cohort requires selectivity, including a disciplined approach to credit underwriting and a focus on actively managing credit risk.

The 2024 theme of dispersion among sectors, subsectors and issuers has continued into 2025. And while the default rate for 2025 is expected to hover slightly above long-term averages, active managers may be able to both cushion against credit deterioration and go on the offensive when fundamental value is mispriced.

Cio weekly chart 2

Nuveen’s Global Investment Committee (GIC) brings together the most senior investors from across our platform of core and specialist capabilities, including all public and private markets.

Regular meetings of the GIC lead to published outlooks that offer:

Related articles

Weekly Fixed Income Commentary Treasury curve flattens as a Fed pause is expected
Spread sectors generally outperformed Treasuries as economic data remained healthy.
Investment Outlook The Fed’s strategic pause: the calm before the cuts
Chair Powell emphasized that conditions remain “highly uncertain” and that “the appropriate thing to do is hold where we are.”
Investment Outlook CIO commentary archive
Access previous issues of Saira Malik’s weekly CIO commentary on strategy and portfolio construction.

Endnotes 

Sources

All market and economic data from Bloomberg, FactSet and Morningstar.

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her financial professionals.

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.

Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Performance data shown represents past performance and does not predict or guarantee future results. Investing involves risk; principal loss is possible.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest directly in an index.

Important information on risk

All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time.

Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Credit risk refers to an issuer’s ability to make interest payments when due. Below investment grade or high yield debt securities are subject to liquidity risk and heightened credit risk. Non-U.S. investments involve risks such as currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager. The value and income generated by bonds and other debt securities will fluctuate based on interest rates. If rates rise, the value of these investments generally drops. Taxable fixed income securities are subject to credit risk, interest rate risk, foreign risk, and currency risk. Neither Nuveen nor any of its affiliates or their employees provide legal or tax advice. Please consult with your personal legal or tax advisor regarding your personal circumstances. Below investment grade or high yield debt securities are subject to heightened credit risk, liquidity risk and potential for default. The issuer of a debt security may be able to repay principal prior to the security’s maturity, known as prepayment (call) risk, because of an improvement in its credit quality or falling interest rates. In this event, this principal may have to be reinvested in securities with lower interest rates than the original securities, reducing the potential for income. Senior loans may not be fully secured by collateral, generally do not trade on exchanges, and are typically issued by unrated or below-investment grade companies, and therefore are subject to greater liquidity and credit risk.

Nuveen, LLC provides investment services through its investment specialists

This information does not constitute investment research as defined under MiFID.

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