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July Wrap: Software, insurance sectors lead loan rally

Kenny Tang

Fri, August 7, 2026 at 2:43 PM GMT+3 8 min read

The US syndicated loan market returned 0.79% in July, its best-performing month since April, as software loans and insurance credits rebounded. A large divide still exists between software and the broader market, however, and the distressed and stressed cohorts remain elevated.

July market highlights:

• Loans returned 0.79% in July, according to the Morningstar LSTA US Leveraged Loan Index, the second-strongest showing in 12 months, led by the software and insurance sectors.

• Performing software loan prices gained 81 bps, to 86.46, while non-software loans gained 18 bps, to 96.84.

• Despite the recent improvement, software remains the second worst-performing sector in the asset class YTD, falling 4.73% (it was down 6.31% through June). The overall index has gained 2.12% in 2026.

• Distressed/stressed paper (issues priced below 90) now accounts for 11.7% of the market, down from 12.7% in June. Software borrowers make up nearly half of those issues.

• New-issue loan activity remained steady, if unspectacular. Repricings and refinancings picked up, while loan extensions dropped off after a busy May and June.

• From a market technical perspective, investor demand for loans increased while supply retreated, resulting in an $8 billion supply shortage.

Loan returns inch higher as software and insurance recover
In July, US leveraged loans posted their second-strongest month in a year, buoyed by software and insurance loans that clawed back some of their losses from the prior two months. The Morningstar LSTA US Leveraged Loan Index returned 0.79% after a tepid eight basis point return in June. Year-to-date, the asset class has returned 2.12%, regaining some ground after the softest first-half performance in four years.

The market-value component of return was 0.19% in July after a negative 0.51% return in June, which was the weakest monthly reading since February's 1.32% decline. The index's weighted average bid rose 20 bps in July to 95.17, though it remains 147 bps below the reading at the start of 2026.

Software improves
The tech sector, concentrated in software, saw a flash of light at the end of the tunnel in July as bids improved, driving the overall positive loan returns for the month. Non-software performing loan bids remained steady, inching 18 bps higher by month-end, to 96.84. That's roughly 16 bps from their second-quarter peak. Software loans improved 81 bps over the month, to 86.46, halting a sharp sell-off that began in earnest in late January. Software bids fell to as low as 85.65 at the end of June. Despite some improvement in July, the average software bid remains almost nine points below its starting point for the year. The rest of the market, in contrast, sits some 110 bps above its intra-year low and a scant 52 bps short of the final reading for 2025.

The gap between secondary prices of performing software names and the rest of the index narrowed by 63 bps, to 10.4 points by the end of July. The gap was 11 points in June and roughly two points at the start of the year.

The software sub-index returned 1.69% in July, climbing from the worst-performing sector in June to the best in July. The reversal was broad — 15 of the top 20 contributors to the overall index return hailed from the software sector, with another one from IT services. In the year-to-date, software has returned negative 4.73%, while the broader index has returned 2.12%. Software is the second worst-performing sector YTD. The worst is building products.

More broadly, activity in the software sector has slowed significantly this year — whether it be M&A dealmaking or issuance of new credits backing those deals — so its footprint in the leveraged loan market has lessened some. Software still claims the largest share of the index, at 12.2% (by par amount) and 11.2% (by market value), but that represents a retreat from the record 13% (by par amount) in May 2025 and marks the sector's lowest share since September 2024.

Insurance rebounds, too
The Morningstar LSTA US Leveraged Loan Index tracks 63 industries based on the GICS industry classification system, with more than half representing less than 1% each of market share.

Among sectors with an index weighting above 1%, insurance was the second-best performer in July, returning 1.58% and reversing losses from May and June. The same borrowers that went steeply negative in June, Acrisure and BroadStreet Partners, rebounded in July. Insurance overall is up 1.01% YTD. The sector accounts for roughly 4% of the index — the fifth-highest industry weighting.

Aside from insurance and software, other sectors that performed well in July include healthcare technology, IT services and professional services. These industries posted significant losses earlier this year, then rode the wave of improving sentiment toward tech- and AI-exposed sectors in July.

Among July's underperformers, building products was down 1.43%, partially offsetting June's 1.76% gain. The sector is the worst-performing cohort YTD, down 5.13%. The building products sector continues to face several headwinds: a sluggish housing market, where elevated mortgage rates continue to suppress activity; inflation; and uncertainty around tariffs on imported building materials. Its impact on the broader leveraged loan market is limited, however, as it accounts for just over 1% of the index.

The Media and Telecom sectors were also in the red in July, dropping 0.47% and 0.53%, respectively. Key contributors were cable and internet provider Optimum Communications, which was recently downgraded into the CCC+ category because of its likelihood of conducting a potential LME. S&P's ratings action followed the company's recent creation of an unrestricted subsidiary, whereby it transferred certain cable assets and its Lightpath interest into this new subsidiary. Meanwhile, Altice International s.a.r.l. was served a notice of default by secured creditors after it was alleged the company stripped assets and moved collateral beyond the lenders' reach. Lastly, Virgin Media, the UK's largest mobile network and second-largest fixed line network, experienced poor operating performance.

Single-Bs and double-Bs advance; triple-Cs remain underwater YTD
Single-B loans outperformed in July. The single-B universe, which accounts for 61% of the index, gained 0.95%, its second-highest return in a year. The price return component was 0.33%, the second highest level in 14 months, as investor appetite for lower-rated paper gained traction.

Double-B loans, representing roughly 23% of the index, have posted returns for every month since May 2023. In July they returned 0.64%, above their 0.47% trailing-12-month average. The cohort maintains a significant YTD lead over single-Bs, at 3.20% versus 2.03%, reflecting the relative resilience of higher-rated names.

Triple-Cs posted a negative 0.09% return in July. Triple-Cs have posted negative market-value returns for three straight months, including a negative 1.05% market-value return in July. Triple-Cs are down 3.52% in 2026, burdened by a negative 9.63% market value return. The segment is relatively small, making up roughly 6% of the index by amount outstanding.

Par-or-above share surges
As market sentiment improved in July, the share of loans priced at par or above — a widely watched gauge of investor demand — rose to 33%, from 22% at the end of June. It remains well below the mid-60% area from mid-January before the tech sell-off.

The rebound spread across the speculative-grade ratings spectrum, with the share of B-flat, B-plus, and BB-minus credits all gaining in their share of par-and-above priced names. Each category now has roughly 40% of its debt in the par-or-better cohort. The share of B-minus names above par, at 17%, is up from 12% at the end of June.

Bid prices offer further evidence of bifurcation by credit quality. The share of loans priced below 80 — the conventional distress threshold — remained stubbornly elevated, hitting 6.9% at month-end, slightly higher than June and significantly above the 4.4% level at the start of the year and 2.8% one year ago. Roughly 4.8% of the market was priced in the 80-89 range. Distressed and stressed paper combined accounts for roughly 11.7% of the market, up from 8.8% at the end of 2025 and 6.8% a year ago.

Within the below-90 cohort, credit quality skews toward lower-rated issuers: 42% of borrowers are rated CCC and 32% are rated B-minus. Sector exposure is similarly concentrated, with software & services accounting for 45% of the cohort.

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This article originally appeared on PitchBook News