Credit spreads jump in March
Source: Bloomberg Finance, L.P, Pitchbook LCD, as of March 17, 2023, latest data available. High yield represented by the ICE BofAML High Yield Master II Index. Senior secured loans represented by the S&P/LSTA Leveraged Loan Index. Spreads refer to a security’s yield above the risk-free rate.
- The significant regional (and global) bank stress that emerged in March heightened investor concerns amid an already questionable macroeconomic outlook.
- Treasury volatility spiked to levels last seen during the global financial crisis while high yield bond spreads (the difference in yield between bonds and U.S. Treasuries of similar maturity) rose significantly, as the chart shows.
- Rising spreads reflect investors’ demand for higher returns to compensate for the perceived level of risk – and vice versa. In fact, high yield spreads rose at the fastest pace since the pandemic lows in March 2020; spreads in the senior secured loan market were more moderate, yet have retraced most of their year-to-date decline.1
- With yields’ appreciable rise from their post-COVID lows, high yield bonds and senior secured loans yield 6.4% and 8.4%, respectively.1 Bonds and loans would be in line to generate an additional 4% and 1.2% in price return, respectively, if spreads returned to their levels of February 28.
- Underlying credit fundamentals remain stable despite large swings in investor sentiment. While we recognize periods of volatility give reason for caution, history has also shown that such times may create attractive investment opportunities.