Back to View all
Chart of the week

Credit offers elevated yields, attractive valuations

High yield bonds and senior secured loans may offer attractive yields and an appealing entry point compared to stocks.

September 15, 2023 | 2 minute read

Historical percentile across asset classes

Source: Bloomberg Finance, L.P., as of September 8, 2023. S&P valuations based on price-to-earning ratios. High yield bonds represented by yields above Treasuries (spreads) on the ICE BofAML U.S. High Yield Bond Index, senior secured loans represented by yields above Treasuries on the Morningstar/LSTA Leveraged Loan Index. CLOs represented by JP Morgan CLOIE BBB Index.

  • While investor sentiment has cooled somewhat in recent weeks, equity valuations have not. S&P 500 valuations (price to earnings) currently reside in the 86th percentile.1 Said another way, stocks have been more expensive just 14% of the time since May 2021.
  • High yield bond and senior secured loans spreads, however, are in the 66th and 49th percentiles, respectively. Spreads on collateralized loan obligations (based on discount margins) are in the 34th percentile.1
  • On a spread basis, credit valuations appear fair to attractive. Credit yields, on the other hand, appear particularly attractive following 525 basis points of Fed rate hikes. In fact, high yield bond and loan yields trade in their 38th and 6th percentile, respectively.1 Current yields of 8% to 10% have helped drive strong year-to-date returns and investor demand for both high yield and loans.1
  • With a significant “yield cushion” and attractive valuations, corporate credit may provide an appealing entry point for investors seeking to hedge their equity exposure.

  • Bloomberg Finance, L.P., as of September 8, 2023. S&P valuations based on price-to-earning ratios. High yield bonds represented by yields above Treasuries (spreads) on the ICE BofAML U.S. High Yield Bond Index, senior secured loans represented by yields above Treasuries on the Morningstar/LSTA Leveraged Loan Index. CLOs represented by JP Morgan CLOIE BBB Index.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Print this page Email this page

Related Insights

Chart of the week

Private credit yields remain attractive despite Fed rate cuts

Real yields on private credit could remain in their top historical quartile even if the Fed cuts another 75 basis points as markets expect.

Chart of the week

Direct lending volume grows amid increased LBO activity

Private credit has increasingly become the preferred source of financing for PE sponsors, with direct lending volume jumping 60% over last year’s level.

Chart of the week

Credit quality comes into focus amid heightened volatility

High yield bonds have outperformed senior secured loans in recent months, given their more attractive duration profile and higher credit quality.

Search our site