Credit market commentary

Credit market commentary: January 2019

Following a month of heightened volatility, the leveraged credit markets rebounded in January. High yield bonds posted their largest monthly return since 2009 and senior secured loans erased all of the declines experienced in December.

February 8, 2019 | 3 minute read

Data as of January 31, 2019 unless otherwise noted

Performance (total returns)

BenchmarksJanuary 2019YTD
Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg)1.06%1.06%
ICE BofAML U.S. High Yield Master II Index (HY Bonds)4.59%4.59%
S&P/LSTA Leveraged Loan Index (Senior Secured Loans)2.55%2.55%

Performance data quoted represents past performance and is no guarantee of future results. An investment cannot be made directly in an index.

Leveraged credit rebounds in January: The leveraged credit markets rebounded in January, with HY Bonds posting their largest monthly return since 2009. Against the backdrop of rising U.S. equities, HY Bonds returned 4.59%, erasing nearly all of the declines experienced during the fourth quarter of 2018.1 High yield bond mutual fund flows reversed course from December’s record outflows, with the asset class pulling in roughly $4.1 billion.2 Senior Secured Loans returned 2.55% in January, making up all of December’s declines, even as bank loan mutual funds continued to experience outflows.2,3 Both credit indices easily outperformed the Barclays Agg, which returned 1.06% during a January in which most asset classes experienced positive returns.4

Treasury yields stable on Fed pause: Following a month of heightened volatility and limited (or no) new issuance volume, the HY Bond and Senior Secured Loan markets regained some semblance of normalcy in January. Widening to 5.4% in December, high yield bond spreads tightened toward their five-year average by January’s end as corporate fundamentals remained stable and corporate default rates remained near historic low levels.5,6 After declining to 2.5-year lows the last week of December, HY Bond and Senior Secured Loan prices rallied meaningfully in January.1,3 While average prices still remain below highs reached in September, this helped revive capital market activity across both asset classes following a December which saw no new issuance in the high yield bond market.7 The yield on the 10-year Treasury note remained below 2.7% as the Federal Reserve released a dovish outlook for the Fed funds rate.8 This helped to buoy the higher-duration Barclays Agg at month-end, but provided an even larger boost to HY Bonds and Senior Secured Loans amid a perceived stable outlook for rates.

Key takeaways

  • Following a month of heightened volatility, the leveraged credit markets rebounded in January.
  • High yield bonds posted their largest monthly return since 2009 and senior secured loans erased all of the declines experienced in December.

  • ICE BofAML U.S. High Yield Master II Index.

  • Thomson Reuters Lipper.

  • S&P LSTA Leveraged Loan Index.

  • Bloomberg Barclays U.S. Aggregate Bond Index.

  • ICE BofAML U.S. High Yield Master II Index (yield-to-worst over Treasuries).

  • J.P. Morgan Default Monitor, 2/1/2019.

  • S&P LCD Weekly Wrap, 1/31/2019.

  • St. Louis Federal Reserve,

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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