Credit market commentary

Credit market commentary: March 2019

Treasury rates fell following the Fed’s dovish tone at their March meeting, boosting the more duration-sensitive Barclays Agg.

April 5, 2019 | 4 minute read

Data as of March 31, 2019 unless otherwise noted

Performance (total returns)

BenchmarksMarch 2019YTD
Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg)1.92%2.94%
ICE BofAML U.S. High Yield Master II Index (HY Bonds)0.98%7.40%
S&P/LSTA Leveraged Loan Index (Senior Secured Loans)-0.17%4.00%

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

Leveraged credit mixed in March: The leveraged credit markets were mixed in March, with HY Bonds continuing their strong start to the year and Senior Secured Loans posting their first negative monthly return since December 2018. Against the backdrop of rising U.S. equities, lower Treasury yields and stable corporate earnings, HY Bonds returned 0.98% last month and 7.40% year to date.1 Alongside a sharp decline in 10-year Treasury yields, HY Bond spreads rose six basis points to 4.05% even as their overall yields declined from 6.57% to 6.48% month over month.1 Despite the general rally in risk assets, higher-rated areas of the HY Bond market outperformed their lower-rated peers last month. In March, BB rated bonds returned 1.31%, while B rated bonds and CCC rated bonds returned 0.88% and -0.03%, respectively.2,3,4 Senior Secured Loans, on the other hand, slipped in March, returning -0.17% as outflows from bank loan mutual funds continued.5 It was the first negative monthly return for the asset class since December 2018, when Senior Secured Loans returned -2.54%. Nevertheless, Senior Secured Loan returns remain positive for 2019, providing year-to-date gains of 4.00%. More broadly, the Barclays Agg generated its strongest monthly return since 2015, benefiting from its high sensitivity to duration as Treasury yields declined across the curve.6,7

Outflows from bank loan mutual funds accelerate: A more accommodative Federal Reserve, dramatically reduced odds of a near-term rate hike and a decline in short-term interest rates are, in part, responsible for steady inflows into high yield bond mutual funds in 2019. In a reversal from 2018’s record outflows, high yield bond mutual funds pulled in roughly $1.5 billion in March and $12.4 billion through the first three months of 2019.8 However, the combination of a more cautious Fed and benign inflation data has had the opposite effect on bank loan mutual fund flows. As of month-end, bank loan mutual funds had experienced 19 consecutive weekly withdrawals totaling $23.5 billion.7 Through March, year-to-date outflows from bank loan mutual funds totaled $9.6 billion.7 Supply and demand in the loan market has remained fairly balanced as reduced new issuance has somewhat offset outflows, but this dynamic and the implications for index returns bear monitoring in future months.

Key takeaway

Treasury rates fell following the Fed’s dovish tone at their March meeting, boosting the more duration-sensitive Barclays Agg.

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

  • ICE BofAML U.S. High Yield BB Index.

  • ICE BofAML U.S. High Yield B Index.

  • ICE BofAML U.S. High Yield CCC Index.

  • S&P/LSTA Leveraged Loan Index.

  • Bloomberg Barclays U.S. Aggregate Bond Index.

  • Federal Reserve Bank of St. Louis,

  • Thomson Reuters Lipper.

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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