Data as of March 31, 2019 unless otherwise noted
Performance (total returns)
| Benchmarks | March 2019 | YTD |
| Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg) | 1.92% | 2.94% |
| ICE BofAML U.S. High Yield Master II Index (HY Bonds) | 0.98% | 7.40% |
| S&P/LSTA Leveraged Loan Index (Senior Secured Loans) | -0.17% | 4.00% |
Performance data quoted represents past performance and is no guarantee of future results. An investment cannot be made directly in an index.
Leveraged credit mixed in March: The leveraged credit markets were mixed in March, with HY Bonds continuing their strong start to the year and Senior Secured Loans posting their first negative monthly return since December 2018. Against the backdrop of rising U.S. equities, lower Treasury yields and stable corporate earnings, HY Bonds returned 0.98% last month and 7.40% year to date.1 Alongside a sharp decline in 10-year Treasury yields, HY Bond spreads rose six basis points to 4.05% even as their overall yields declined from 6.57% to 6.48% month over month.1 Despite the general rally in risk assets, higher-rated areas of the HY Bond market outperformed their lower-rated peers last month. In March, BB rated bonds returned 1.31%, while B rated bonds and CCC rated bonds returned 0.88% and -0.03%, respectively.2,3,4 Senior Secured Loans, on the other hand, slipped in March, returning -0.17% as outflows from bank loan mutual funds continued.5 It was the first negative monthly return for the asset class since December 2018, when Senior Secured Loans returned -2.54%. Nevertheless, Senior Secured Loan returns remain positive for 2019, providing year-to-date gains of 4.00%. More broadly, the Barclays Agg generated its strongest monthly return since 2015, benefiting from its high sensitivity to duration as Treasury yields declined across the curve.6,7
Outflows from bank loan mutual funds accelerate: A more accommodative Federal Reserve, dramatically reduced odds of a near-term rate hike and a decline in short-term interest rates are, in part, responsible for steady inflows into high yield bond mutual funds in 2019. In a reversal from 2018’s record outflows, high yield bond mutual funds pulled in roughly $1.5 billion in March and $12.4 billion through the first three months of 2019.8 However, the combination of a more cautious Fed and benign inflation data has had the opposite effect on bank loan mutual fund flows. As of month-end, bank loan mutual funds had experienced 19 consecutive weekly withdrawals totaling $23.5 billion.7 Through March, year-to-date outflows from bank loan mutual funds totaled $9.6 billion.7 Supply and demand in the loan market has remained fairly balanced as reduced new issuance has somewhat offset outflows, but this dynamic and the implications for index returns bear monitoring in future months.
Key takeaway
Treasury rates fell following the Fed’s dovish tone at their March meeting, boosting the more duration-sensitive Barclays Agg.
