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Leveraged loans are playing an increasingly prominent role within the high yield landscape, with data from S&P Dow Jones Indices showing that the U.S. leveraged loan market has grown from nearly USD 400 million to USD 1.5 trillion over the last decade.¹ The expansion of the broader loan ecosystem has naturally increased the importance and relevance of indices measuring performance and serving as category benchmarks, creating the potential for index-linked products and derivatives based on the S&P UBS Leveraged Loan Index Series.

Offering a broad benchmark for the U.S. loan market, the S&P UBS Leveraged Loan Index tracks USD-denominated leveraged loans with a credit rating below investment grade or, for unrated loans, with a spread of 125 bps above their reference rate.² The index rebalances at the end of every month to account for new loans, continually reflecting changes in underlying credit risk and interest rate spreads. When it comes to credit risk, as shown in Exhibit 1, there has been a shift of over 10% from BB rated loans to B rated loans over the last decade.

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The index also reflects how interest spreads (above the reference rate) have drifted downward over time as the leveraged loan market has grown. The index-weighted average spread of the S&P UBS Leveraged Loan Index declined (or compressed) over the period shown in Exhibit 1—both at the overall level and within each credit bucket—as shown in Exhibit 2.

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External forces also play a role in shaping the S&P UBS Leveraged Loan Index. Exhibit 3 shows the evolution of the index-weighted average three-year discount margin over the current year.³ The impact of the April 2025 tariff announcements and the accompanying economic and market uncertainty had the effect of sharply increasing the discount margin in April, but this was followed by a reversal and more, bringing the discount margin to new YTD lows over the summer.

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The S&P UBS Leveraged Loan Indices have been an important measure of the evolving U.S. and European loan markets since the 1990s, enhancing transparency for market observers and participants. The indices will continue to support the market through loan benchmarking, performance measurement and the development of index-linked products. With the growing demand for indexing solutions in the leveraged finance sector, the S&P UBS Leveraged Loan Indices are poised to play an increasingly significant role in shaping market understanding.

¹ See the S&P UBS Leveraged Loan Index Factsheet. Data as of Sept. 30, 2025.

² The yield on each loan is composed of a reference rate plus a predetermined spread. The reference rate for each loan is typically a published money market interest rate that evolves over the period of the loan. Presently, the U.S. dollar SOFR (Secured Overnight Funding Rate) is typically used for new loans, but other reference rates may be used—especially historically.

³ The three-year discount rate for each loan, based on its current price, is the excess annualized yield (over the reference rate) that would result if that loan realized all future cash flow over an assumed three-year life. Accordingly, if the loan is currently trading at a price equal to its notional, the discount margin will equal the spread exactly. A lower price will result in a higher discount margin; a higher price results in a lower discount margin.

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