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.
