Data as of September 30, 2018 unless otherwise noted
Performance (total returns)
| Benchmarks | September 2018 | YTD |
| Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg) | -0.64% | -1.60% |
| ICE BofAML U.S. High Yield Master II Index (HY Bonds) | 0.58% | 2.50% |
| S&P/LSTA Leveraged Loan Index (Senior Secured Loans) | 0.69% | 4.03% |
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 up again in September: The leveraged credit markets rose in September, once again benefiting from solid corporate fundamentals and stronger U.S. economic data. HY Bonds posted their fourth straight monthly gain and Senior Secured Loans recorded their 14th monthly gain over the past 15 months. HY Bonds returned 0.58% in September, building on the gains of July and August, as U.S. equities hit record highs.1 HY Bonds generated a total return of 2.44% in the third quarter of 2018, the strongest quarterly return since the first quarter of 2017.1 Senior Secured Loans returned 0.69% in September, outpacing HY Bonds for the first time in three months, likely benefiting from their floating rate coupons and potential hedge against rising interest rates.2,3 Year to date, Senior Secured Loans have outperformed both HY Bonds and other higher-duration fixed income investments. For example, the Barclays Agg returned -0.64% in September and remains negative in 2018 due in part to the index’s higher sensitivity to interest rates.3
Treasury yields rise on strong economic data: The yield on the U.S. 10-year Treasury note rose above 3% in September as a mix of strong U.S. growth, rising wages and low unemployment sent long-term yields briefly near a seven-year high.4 By month’s end, U.S. 10-year Treasury yields were approximately 3.06%, compared to 2.41% at the outset of the year.4 The U.S. 2-year Treasury note yield, which is more sensitive to U.S. Federal Reserve rate expectations, rose to a 10-year high of 2.8%.4 The rise in Treasury yields contributed to the underperformance of the Barclays Agg, which experienced declines due to its relatively high allocation to U.S. Treasuries and other higher-duration investments. Both HY Bonds and Senior Secured Loans have outperformed the higher-duration Barclays Agg so far this year. Senior secured loans, which have floating rate coupons, have particularly benefited from the rise in interest rates, outperforming both high yield bonds and the Barclays Agg in 2018.
Key takeaways
- Strong corporate and economic data caused high yield bonds and senior secured loans to rally.
- High-duration portfolios, like the Barclays Agg, continued to struggle amid rising rates.
- HY Bonds generated their strongest quarterly return since Q1 2017.
