Credit market commentary

Credit market commentary: August 2019

Leveraged credit mixed in August | High-rated credit outperforms

September 9, 2019 | 3 minute read

Data as of August 31, 2019 unless otherwise noted

Performance (total returns)

BenchmarksAugust 2019YTD
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

Key takeaway

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.

  • ICE BofAML U.S. High Yield Index.

  • Refinitiv Lipper.

  • S&P/LSTA Leveraged Loan Index.

  • Bloomberg Barclays U.S. Aggregate Bond Index.

  • ICE BofAML U.S. High Yield BB Index.

  • ICE BofAML U.S. High Yield CCC Index.

  • ICE BofAML U.S. High Yield BB Index (yield-to-worst).

  • ICE BofAML U.S. High Yield CCC Index (yield-to-worst).

  • S&P/LSTA U.S. BB Rated Loan Index.

  • S&P/LSTA U.S. CCC Rated Loan Index.

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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