Credit market commentary

Credit market commentary: January 2023

In a remarkable turnaround from last year’s pervasive negativity, credit markets rallied strongly in January.

February 15, 2023

Data as of January 31, 2023, unless otherwise noted.

Performance (total returns)

BenchmarksJanuary 2023YTD
Bloomberg U.S. Aggregate Bond Index (Bloomberg Agg)3.08%3.08%
ICE BofAML U.S. High Yield Index (HY Bonds)3.91%3.91%
S&P/LSTA Leveraged Loan Index (Senior Secured Loans)2.73%2.73%

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

Credit markets rallied in January: In a remarkable turnaround from last year’s pervasive negativity, credit markets rallied strongly in January. Signs of slowing inflation and relatively strong economic data assuaged near-term recession fears, boosting market sentiment for much of the month. High yield bonds returned 3.91% while senior secured loans were up 2.73%. Lower rated credit led the way, as recessions fears ebbed and risk appetite improved. CCC bonds gained 6.2%, their strongest monthly return since 2016, versus BB and B bonds, which gained 3.35 and 3.96%, respectively. B and CCC rated loans returned 3.11% and 3.09%, respectively, beating BB rated loans, which returned 2.73%. Despite January’s strong rally, investors expressed caution about the longer-term growth outlook, with long-term rates falling substantially last month. The 10-year U.S. Treasury yield fell nearly 40 basis points, boosting duration sensitive assets such as the Bloomberg Aggregate Bond index, which returned 3.08%. There were five defaults in January, three of which were loan only issuers. The trailing 12-month default rates ticked higher in both markets, ending January at 1.83% and 1.82% for bonds and loans, respectively.

Credit primary market update: The high yield bond primary market saw an uptick in activity last month, with $20.5 billion of bonds issued amid January’s environment of generally positive sentiment, diminished volatility and declining long-term interest rates. The loan market did not keep pace with bonds, with just $13.9 billion of issuance last month. Note however, that to date, only 28.5% of the loan market has transitioned from LIBOR to SOFR, which will serve as a tailwind to loan issuance over the coming months (the transition must be completed by June 2023). January’s issuance comes on the heels of 2022’s extremely anemic primary market. Despite this, credit markets remain, in our view, well capitalized. Only 8% of the market matures before the end of 2024, and many issuers locked in the ultra-low interest rates available in 2020 and 2021.

Key takeaways

  • Credit markets rallied month; high yield bonds gained 3.91% while senior secured loans gained 2.73%, as signs of slowing inflation and relatively strong economic data assuaged near-term recession fears.
  • The primary market thawed somewhat last month, after 2022’s anemic issuance levels. Credit markets remain, in our view, well capitalized.

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.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Search our site