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ETF Specialist

Why Yields on Floating-Rate Bank Loans Aren't Floating (Yet)

Interest-rate floors have become the norm for bank loans amid persistent near-zero interest rates.

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Bank loans, also called leveraged or floating-rate loans, are a unique offering within the fixed-income complex. In recent years, bank loans have attracted attention as many investors look to protect their bond portfolios from an eventual rise in interest rates. Indeed, this Morningstar Category saw an estimated $67.5 billion in estimated net inflows in 2013. Despite significant outflows in 2014 and through the first quarter of 2015, the category has still doubled in size during the past three years.

With such emerging asset classes there can often be some misconceptions because of a relative lack of familiarity. Since bank loans have only recently become part of investors' fixed-income tool kit, it's worth taking a closer look at one of the asset class' distinguishing characteristics.

John Gabriel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.