Chart of the week

Credit has never had consecutive negative annual returns

Are credit markets poised for a bounce back? They have never seen two consecutive down years. This week’s chart looks at historical credit returns.

February 3, 2023 | 2 minute read

Credit returns by year

Source: Bloomberg Finance, L.P., as of February 1, 2023. High yield bonds represented by the ICE BofAML U.S. High Yield Index Index; Senior secured loans represented by the S&P/LSTA Leveraged Loan Index.

  • Investor sentiment has changed dramatically early this year amid a better-than-feared Q4 earnings season and expectations of a less-hawkish Federal Reserve as inflationary pressures ease. Volatility could reassert itself, of course, especially if the Fed continues tightening in the wake of strong jobs data or if a recession materializes and corporate earnings fall substantially.
  • Yet with high yield bonds and loans each offering yields of approximately 8.4% and 9.7%, respectively, credit markets enter 2023 well positioned to absorb some bad news and potentially generate attractive total returns this year.1
  • In fact, history tells us neither high yield bonds nor senior secured loan markets have ever posted two consecutive negative annual returns since the indices’ inception in 1986 (high yield) and 1997 (loans).
  • The chart highlights annual returns for high yield bond and senior secured loan indexes each year since 2005. As it shows, credit returns have historically experienced volatility, yet they may be particularly well-positioned today, as both high yield bonds and senior secured loans have seen significant bounce-backs the year after posting negative annual returns (2009 and 2019).1
  • Of course, no two market cycles are the same and markets still face a host of risks and uncertainties. Yet credit is supported by a strong fundamental base and offers a generous yield, which could make it relatively well-positioned to navigate additional volatility and/or a potential economic slowdown.

  • Bloomberg Finance, L.P., as of February 1, 2023. High yield bonds represented by the ICE BofAML U.S. High Yield Index Index; Senior secured loans represented by the S&P/LSTA Leveraged Loan Index. High yield bond data.

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