Insights

Unlocking opportunity in the leveraged loan market

Advances in fixed income trading and technology have opened up the opportunity for investors to harness leveraged loan exposure through indexing.

Srinivasan Margabandu

Fixed Income Portfolio Specialist

Why leveraged loans are ready for indexing

The leveraged loan market has evolved significantly in recent decades, with more frequent pricing, improved trading and settlement platforms, richer data, and a broader investor base. While loans still face some operational hurdles, these improvements, alongside significant growth in the Collateralized Loan Obligation (CLO) market, together enable more diversified, efficient, and transparent indexing in loans. Now, we are delivering this capability in an ETF.

Market structure advancements driving liquidity

The US leveraged loan market is now $1.5 trillion, surpassing the $1.4 trillion high-yield bond market. This growth was accompanied by several structural improvements that reduce opacity and operational friction, supporting delivery of broadly representative and efficient loans beta in a liquid ETF.

Record trading volumes and price transparency

Secondary market trading hit a record $517 billion in H1 2025, up 30% from H2 2024.¹ Higher volumes are consistent with a more accessible, liquid market, with tighter spreads and enhanced price transparency. Advanced pricing models now combine real market inputs with borrower fundamentals, supporting fair valuations.

Reduced trading costs

The bid-ask spread in loans has narrowed. While spreads can widen during risk-off events, the trend to narrower spreads drives lower costs for investors (Figure 2).

Operational infrastructure improvements

Specialized data providers have streamlined trade confirmation, matching, and documentation, reducing settlement delays (Figure 3). The arrival of multiple global and regional benchmark providers with clear inclusion criteria, daily pricing, and explicit corporate action treatments has improved the ability of managers to improve precision in index-tracking, risk management, and performance attribution.

Electronification of trading

Electronic trading is gaining traction, creating centralized marketplaces for loans and CLOs. While only 6% of loans are traded electronically now (vs. 33% for high-yield bonds), rapid adoption from just 1% at the beginning of 2024 signals further progress is likely.

Expanding investor base and ETF growth boost liquidity

Attractive yields and, given near-zero duration, the diversifying proprieties of leveraged loans beta are drivers of investor interest. ETFs’ portion of leveraged loan mutual fund assets has risen. Leveraged loan ETF assets (including CLO and traditional loan ETFs) reached $46.1 billion at the end of 2024, with ETFs now representing 28% of loan mutual fund assets (Figure 4).² ETFs have become a key source of price discovery and market access, especially during periods of stress, and they are expected to further broaden the investor base and enhance liquidity.

State Street Investment Management’s edge in leveraged loan ETFs

We’ve drawn on our scale and market presence, skill in trading, and experience in complex betas to design and implement a loan ETF. State Street leverages market presence and technology to help clients access leveraged loan opportunities. Our experience in indexing complexing asset classes, along with other capabilities, allow us to effectively offer loan exposure in an ETF format. Other relevant strengths include:

Scale

The leveraged finance team at State Street Investment Management ranks among the top five high-yield trading partners for major banks. With coverage across bonds and loans, the team leverages these relationships across the capital stack, driving competitive bids and sizable new issue allocations. This scale also supports investment in technology and analytics, reducing costs for investors.

Skill

Our expertise and proven track record in index sampling, risk alignment, and portfolio optimization drove strong results and tight tracking risk in our institutional index loans approach.

Experience

Our fiduciary culture and rigorous risk management extend to complex parts of the market, including leveraged loans. Specialists in leveraged finance oversee more than $40b in index strategies across high yield and leveraged loans, addressing defaults, downgrades, index changes, calls, tenders, and volatility. A multi-layered risk framework and daily monitoring seek to minimize tracking risk, even in less liquid exposures.

Learn more

If you’d like to learn more about our leveraged loan capabilities, please contact your sales representative.

Footnotes

Disclosure

Important Risk Information

Ssga.com

State Street Global Advisors Worldwide Entitites

Information Classification: General

Marketing communication. For institutional/professional investors use only.

All information is from SSGA unless otherwise noted and 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.

Investing involves risk including the risk of loss of principal.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

The views expressed are the views of Srinivasan Margabandu through November 10, 2025, and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward- looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected.

This communication is not intended to be an investment recommendation or investment advice and should not be relied upon as such.

ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.

Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.

There can be no assurance that a liquid market will be maintained for ETF shares.

Actively managed funds do not seek to replicate the performance of a specified index. An actively managed fund may underperform its benchmarks. An investment in the fund is not appropriate for all investors and is not intended to be a complete investment program. Investing in the fund involves risks, including the risk that investors may receive little or no return on the investment or that investors may lose part or even all of the investment.

Investments in Senior Loans are subject to credit risk and general investment risk. Credit risk refers to the possibility that the borrower of a Senior Loan will be unable and/or unwilling to make timely interest payments and/or repay the principal on its obligation. Default in the payment of interest or principal on a Senior Loan will result in a reduction in the value of the Senior Loan and consequently a reduction in the value of the Portfolio’s investments and a potential decrease in the net asset value (NAV) of the Portfolio. Securities with floating or variable interest rates may decline in value if their coupon rates do not keep pace with comparable market interest rates. Narrowly focused investments typically exhibit higher volatility and are subject to greater geographic or asset class risk. The fund is subject to credit risk, which refers to the possibility that the debt issuers will not be able to make principal.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates rise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

The value of the debt securities may increase or decrease as a result of the following: market fluctuations, increases in interest rates, inability of issuers to repay principal and interest or illiquidity in the debt securities markets; the risk of low rates of return due to reinvestment of securities during periods of falling interest rates or repayment by issuers with higher coupon or interest rates; and/or the risk of low income due to falling interest rates. To the extent that interest rates rise, certain underlying obligations may be paid off substantially slower than originally anticipated and the value of those securities may fall sharply. This may result in a reduction in income from debt securities income.

Passively managed funds invest by sampling the index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index.

Investing in high yield fixed income securities, otherwise known as “junk bonds”, is considered speculative and involves greater risk of than investing in investment grade fixed income securities.

The S&P USD Select Leveraged Loan Index is a product of S&P Dow Jones Indices LLC or its affiliates (“S&P DJI”) and UBS AG and has been licensed for use by State Street Investment Management. S&P® is a trademark of S&P Global, Inc. or its affiliates (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been Licensed for use by S&P DJI and sublicensed for certain purposes by State Street Investment Management. The State Street SPDR S&P Leveraged Loan ETF is not sponsored or sold by S&P DJI, Dow Jones, UBS AG, S&P or their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Indices.

Diversification does not ensure a profit or guarantee against loss.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the applicable regional regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.

For EMEA Investors: The information provided does not constitute investment advice as such term is defined under the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any investment. It does not take into account any investor's or potential investor’s particular investment objectives, strategies, tax status, risk appetite or investment horizon. If you require investment advice you should consult your tax and financial or other professional advisor.

This communication is directed at professional clients (this includes eligible counterparties as defined by the appropriate EU regulator) who are deemed both knowledgeable and experienced in matters relating to investments. The products and services to which this communication relates are only available to such persons and persons of any other description (including retail clients) should not rely on this communication.

Past performance is not a reliable indicator of future performance.

The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data.

More on fixed income

View all fixed income insights