Credit market commentary

Credit market commentary: April 2020

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.

May 5, 2020 | 3 minute read

Data as of April 30, 2020 unless otherwise noted.

Performance (total returns)

BenchmarksApril 2020YTD
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.

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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