Credit market commentary

Credit market commentary: February 2020

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.

March 4, 2020 | 4 minute read

Data as of February 29, 2020 unless otherwise noted

Performance (total returns)

BenchmarksFebruary 2020YTD
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. 

  • ICE BofAML U.S. High Yield Index.

  • S&P/LSTA Leveraged Loan Index.

  • S&P 500 Index.

  • J.P. Morgan CLOIE Index.

  • Bloomberg Barclays U.S. Aggregate Bond Index.

Index descriptions: Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency). ICE BofAML U.S. High Yield Master II Index is designed to track the performance of U.S. dollar-denominated below investment grade corporate debt publicly issued in the U.S. domestic market. S&P/LSTA Leveraged Loan Index is a market value-weighted index designed to measure the performance of the U.S. leveraged loan market.

The indexes referenced herein are the exclusive property of each respective index provider and have been licensed for use by FS Investments. The index providers do not guarantee the accuracy and/or completeness of the indexes and accept no liability in connection with the use, accuracy, or completeness of the data included therein. Inclusion of the indexes in these materials does not imply that the index providers endorse or express any opinion in respect of FS Investments. Visit for more information.

This credit market commentary and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The credit market commentary is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such credit market commentary. The credit market commentary should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the credit market commentary or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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