As the Federal Reserve resumed rate hikes in September and the 10-year Treasury yield surpassed 5%, its highest level since 2007, investors may be wondering how persistently higher interest rates could reshape asset prices. While rising yields have created challenges for traditional fixed income sectors, syndicated bank loans have been a bright spot according to a recent quarterly markets commentary from Morningstar Indexes Strategist Dan Lefkovitz.
The Morningstar US Core Bond Index declined by 2.7% for the first three quarters of 2026. Longer-duration Treasuries, represented by the Morningstar US 10+ Year Treasury Bond Index, lost 7.2% over the same period. Meanwhile, bank loans have benefited from the recent Fed activity due to their floating-rate coupon structure. The asset class, measured by the Morningstar LSTA US Leveraged Loan Index, has gained 3.3% for the year to date.
Rising Bond Yields Pummel Interest Rate-Sensitive Fixed Income in 2026, While Floating-Rate Loans Benefit
Source: Morningstar Direct. Data as of September 30, 2026. Total returns in USD for Morningstar Indexes.
Elizabeth Templeton, Senior Fixed Income & Multi-Asset Product Manager at Morningstar Indexes, said:
“In an environment where higher rates can create challenges for interest rate-sensitive fixed income sectors, leveraged loans have demonstrated the potential benefits of floating-rate exposure, helping investors reduce interest rate sensitivity. For investors seeking diversification across fixed income markets, this may be an opportune time to evaluate whether bank loans can have a role in their portfolios.”
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