Leveraged Loan Index Getting Frothy

Here is an interesting chart showing how much leveraged loans have bounced back from their December lows. Two points are worth noting:
1. Bank loans have nearly bounced back to their pre-Lehman levels and now trade close to 90 cents of par. While fund flows could continue to tighten spreads (and certainly have over the last few weeks), much of the easy money, and the absolute/generational no brainer money of Nov/Dec 2008, has been sucked dry.
2. Loans bottomed well before stocks made their March 9th low. In fact, despite the modest bounce in Jan/Feb, as credit-related hedge funds prepared for March 31 redemptions, the leveraged loan market has been on a steady trajectory upward.

I find it pretty amazing how in the absence of any real fundamental improvement in the economy investor psychology has swung so dramatically in the last 3 months. We’ll see over the coming months/quarters whether such enthusiasm actually makes its way into the real economy.