Data as of January 31, 2019 unless otherwise noted
Performance (total returns)
| Benchmarks | January 2019 | YTD |
| 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.
