Data as of April 30, 2020 unless otherwise noted.
Performance (total returns)
| Benchmarks | April 2020 | YTD |
| Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg) | 1.78% | 4.98% |
| ICE BofAML U.S. High Yield Master II Index (HY Bonds) | 3.80% | -9.82% |
| S&P/LSTA Leveraged Loan Index (Senior Secured Loans) | 4.50% | -9.13% |
Performance data quoted represents past performance and is no guarantee of future results. An investment cannot be made directly in an index.
Leveraged credit rallies in April: Markets broadly rallied during April, shrugging off historically weak economic data as the Federal Reserve and Congress provided unprecedented levels of stimulus and the virus showed some signs of abating. Equities posted their strongest monthly return since 1987 with Senior Secured Loans recording the largest one-month gain since May 2009 and HY Bonds with their strongest month since January 2019. For the first time in history, the Fed announced it would intervene directly in sub-investment grade credit markets with the purchase of recently fallen angels and HY Bond ETFs. Credit markets stabilized on this news as well as the possibility that some of the other recently announced programs would directly benefit HY Bond and leveraged loan issuers. Likely benefiting from their seniority in the capital structure, Senior Secured Loans returned 4.50% in April, outperforming HY Bonds, which returned 3.80%. The yield on the U.S. 10-year Treasury rose slightly early in April before falling again for the rest of the month, boosting the duration-sensitive Barclays Agg, which returned 1.78%.
Return dispersion by rating back in focus: Investors poured money into HY Bonds throughout April, with the asset class fully recouping the outflows seen during the sell-off as new issuances surged. Senior Secured Loan funds saw outflows for much of the month, although at a lower rate than in March, and recorded net inflows for the week ended April 15. Looking under the surface, however, shows that while appetite for these products was strong, investors are still exercising caution. The highest-rated bonds (BBs) outperformed both B and CCC rated issues, a dynamic we witnessed for most of 2019. In the loan market, B rated issues bested BB bonds, but CCCs still lagged. Given the immense uncertainties that still remain and the early stages of the market recovery, it’s not surprising to see higher-quality names leading the way. As expected, default rates in both markets rose, with the high yield rate of 4.92% marking a 10-year high and loans at a 5-year high of 2.97%.
Key takeaways
- Markets broadly rallied in April on the back of unprecedented stimulus by Congress and the Federal Reserve.
- HY Bonds posted their strongest monthly performance since January 2019 while Senior Secured Loans recorded their largest one-month gain since 2009.
- A decline in interest rates following an early-month spike boosted the duration-sensitive Barclays Agg.
