Data as of October 31, 2018 unless otherwise noted
Performance (total returns)
| Benchmarks | October 2018 | YTD |
| Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg) | -0.79% | -2.38% |
| ICE BofAML U.S. High Yield Master II Index (HY Bonds) | -1.60% | 0.85% |
| S&P/LSTA Leveraged Loan Index (Senior Secured Loans) | -0.03% | 4.00% |
Performance data quoted represents past performance and is no guarantee of future results. An investment cannot be made directly in an index.
High yield bonds and senior secured loans lower in volatile October: U.S. equity volatility spilled into the leveraged credit markets in October, with HY Bonds declining the most since January 2016. Against the backdrop of a 6.8% decline in the S&P 500, HY Bonds posted their first monthly decline in five months. HY Bonds returned -1.60% in October, erasing some of the gains experienced during the third quarter, even as fundamentals remained stable and supply from new high yield bond issuance declined.1,2 Senior Secured Loans returned -0.03% in October, outpacing high yield bonds and investment grade bonds, likely benefiting from their floating rate coupons and senior position.1,3 Year to date, Senior Secured Loans have outperformed both HY Bonds and other higher-duration fixed income investments by a relatively wide margin. For example, the Barclays Agg returned -0.79% in October and remains negative in 2018 due, in part, to the index’s higher sensitivity to interest rates.4
Treasury yields rise despite equity volatility: The yield on the 10-year Treasury note rose to a seven-year high in early October and remained above 3.0% throughout the month as a mix of strong U.S. growth, rising wages and low unemployment weighed on Treasury prices. By month end, 10-year Treasury yields were approximately 3.14%, compared to 2.41% at the outset of the year.5 The 2-year Treasury note yield, which is more sensitive to Federal Reserve rate expectations, rose near 2.9% even as equity volatility and geopolitical concerns had investors seeking out the safety of Treasuries at various times throughout the month.4 The rise in Treasury yields contributed to the underperformance of the Barclays Agg, which experienced declines alongside U.S. equities and other risk assets due, in part, to its high allocation to Treasuries and other higher-duration investments.
Key takeaways
- Credit indices fell alongside equities in October, while rising interest rates weighed heaviest on the Barclays Agg.
- Equities and high yield credit declined in a volatile trading month.
- Senior Secured Loans generally held steady and captured upside to October’s rising rates, which caused the Barclays Agg to trade down.
