Data as of August 31, 2019 unless otherwise noted
Performance (total returns)
|Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg)||2.59%||9.10%|
|ICE BofAML U.S. High Yield Index (HY Bonds)||0.39%||11.15%|
|S&P/LSTA Leveraged Loan Index (Senior Secured Loans)||-0.28%||6.30%|
Performance data quoted represents past performance and is no guarantee of future results. An investment cannot be made directly in an index.
Leveraged credit mixed in August: The leveraged credit markets were mixed in August, with HY Bonds eking out a small gain and Senior Secured Loans posting a slight loss. Returns for both HY Bonds and Senior Secured Loans were impacted by a decline in U.S. equity prices, global growth concerns and a sharp drop in U.S. Treasury yields. After underperforming Senior Secured Loans in July, HY Bonds outperformed in August even as investors withdrew nearly $4.54 billion from HY Bond mutual funds.¹ After accounting for August’s large outflow, inflows into HY Bond mutual funds still remain strongly positive for the year, at $11.24 billion in 2019.² Senior Secured Loans returned -0.28% in August as demand for floating-rate investments remained muted and outflows from bank loan mutual funds persisted.³ Investors pulled more than $2.76 billion from bank loan mutual funds in August, which marked the eleventh straight monthly outflow from the asset class for a total of $46.4 billion over that time period.² The Barclays Agg recorded a healthy gain in August as U.S. Treasury yields declined sharply across the curve, with the yield on the 10-year U.S. Treasury note declining to its lowest level in over two years.⁴
High-rated credit outperforms: Amid an uptick in equity market volatility and economic growth concerns, higher-rated areas of the leveraged credit markets continued to outperform their lower-rated peers in August. Last month, BB rated bonds returned 1.20%, while CCC rated bonds returned -2.26%.5,6 Investor demand for higher-rated credit helped push BB rated bond yields to their lowest level in almost two years. The average yield on BB rated bonds declined to 4.16% by month-end, down from 4.45% at the beginning of the month.⁷ Conversely, CCC rated bond yields widened to 12.16% from 11.66% at the beginning of the month.⁸ For additional context, BB rated bonds and BB rated senior secured loans have returned 12.73% and 7.15%, respectively, year to date.5,9 By comparison, CCC rated bonds and CCC rated senior secured loans have returned 6.10% and 3.37%, respectively, through the same period.6,10
Leveraged credit was mixed this month – high yield was positive while loans were down slightly. Volatility in equity markets spurred a global flight to quality, boosting the duration-sensitive Barclays Agg.