Credit market commentary

Credit market commentary: March 2020

HY Bonds and Senior Secured Loans each endured their worst month since 2008, ending down -11.76% and -12.37%, respectively, as the global rout in risk assets continued. Historically, credit markets have been resilient, performing well following sell-offs and rewarding investors for buying in at or near current spread levels.

April 2, 2020 | 2 minute read

Data as of March 31, 2020 unless otherwise noted.

Performance (total returns)

BenchmarksMarch 2020YTD
Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg)-0.59%3.15%
ICE BofAML U.S. High Yield Master II Index (HY Bonds)-11.76%-13.12%
S&P/LSTA Leveraged Loan Index (Senior Secured Loans)-12.37%-13.05%

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

Leveraged credit joined global market rout in March: March capped off what can only be described as a wild quarter. With the economy all but ground to a halt, risk assets sold off globally and credit was no exception. HY Bonds and Senior Secured Loans each endured their worst month since 2008, ending down -11.76%1 and -12.37%,2 respectively, versus equities, which returned -12.35%. Credit markets had fared relatively well through March 8, but tumbled during “round two” of the global sell-off sparked by the continued spread of the coronavirus and news of an oil price war between Russia and Saudi Arabia. The sell-off largely remained orderly, as the sectors most impacted by the economic fallout associated with the virus saw their performance hit the hardest. Markets saw some stabilization in the last week of the month following the Fed’s announcement of unprecedented stimulus efforts, including the ability to intervene in corporate bond markets for the first time ever. The yield on the 10-year U.S. Treasury closed below 1% for the first time ever on March 3, ultimately ending the month at an astonishing 66 basis points (bps). With rates so low and little room for price appreciation to shield core fixed income from volatility, the Barclays Agg, often used as a hedge to equities, ended the month down -0.59%.

Credit markets are historically resilient: With both HY Bonds and Senior Secured Loans delivering their worst performance in over a decade and spreads at their widest levels since 2008, investors may take some comfort in looking at the historic resiliency of credit markets. In its 23-year history, the Senior Secured Loan market has only experienced two years of negative return. HY Bonds have had negative returns in seven individual calendar years, and never two in a row. Additionally, buying into HY Bonds with spreads at current levels has historically rewarded investors. Spreads have begun a month wider than 900 bps 25 times in history. If held for at least 12 months, in every instance, investors have never lost money. The median forward annualized 1-, 2- and 3- year returns for the periods following such spread levels are 36.9%, 25.5% and 20.8%, respectively.3

Key takeaways

  • HY Bonds and Senior Secured Loans each endured their worst month since 2008, ending down -11.76% and -12.37%, respectively, as the global rout in risk assets continued.
  • Historically, credit markets have been resilient, performing well following sell-offs and rewarding investors for buying in at or near current spread levels.

  • ICE BofAML U.S. High Yield Index.

  • S&P/LSTA Leveraged Loan Index.

  • JP Morgan.

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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