Data as of February 29, 2020 unless otherwise noted
Performance (total returns)
| Benchmarks | February 2020 | YTD |
| Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg) | 1.80% | 3.76% |
| ICE BofAML U.S. High Yield Index (HY Bonds) | -1.55% | -1.55% |
| S&P/LSTA Leveraged Loan Index (Senior Secured Loans) | -1.32% | -0.77% |
Performance data quoted represents past performance and is no guarantee of future results. An investment cannot be made directly in an index.
Leveraged credit was down in February: HY Bonds and Senior Secured Loans ended the month down -1.55% and -1.32%, respectively, alongside the swiftest equity-market correction in history.1,2 Markets, which had largely ignored news of the spread of the coronavirus through mid-February, seemingly woke up to the risks on February 20, prompting the worst week in equity markets since the depths of the financial crisis. Investors are left to grapple with the virus potentially putting a damper on global economic growth and the resulting impact on corporate earnings. Credit markets fared relatively well compared to equities, which lost -8.23% in February.3 Collateralized loan obligations, likely benefiting from their inherent diversification and structural protections, offered strong downside protection, ending the month roughly flat (-0.06%).4 The yield on the 10-year U.S. Treasury hit an all-time low and ended the month at 1.15%, boosting the duration-sensitive Barclays Agg, which returned 1.80% in February.5
Coronavirus’s impact on credit is not uniform: While the ultimate impact of the virus on global growth and financial markets is not yet determined, examining the performance of credit by sector shows that the impact on markets thus far has not been uniform. While each sector has been hit, energy has been the clear laggard. Oil prices continue to slump on fears of diminished global demand, and NYMEX crude oil dropped below $48 per barrel for the first time since January 2019. Over one-third of high yield energy names now trade at distressed prices (defined as bonds with spreads greater than 1,000 bps). Outside of energy, subsectors such as airlines, cruise lines and certain areas of retail have been hit particularly hard. Other areas such as automotive (due to supply chain exposure), leisure activities (including tourism and entertainment) and hospitality (also related to tourism) may see heightened risks.
Key takeaways
- The last week of February saw a global sell-off in risk assets as markets reacted to news of the coronavirus.
- Leveraged credit markets slid alongside a steeper drop in equities.
- The Barclays Agg benefited from its long duration, returning 1.80% as rates hit all-time lows during the month.
