Credit market commentary

Credit market commentary: January 2020

January was a mixed month for leveraged credit. HY Bonds ended January flat while Senior Secured Loans returned 0.56%. The duration-sensitive Barclays Agg rallied as rates fell over 40 bps over the course of the month.

February 6, 2020 | 2 minute read

Data as of January 31, 2020 unless otherwise noted

Performance (total returns)

BenchmarksJanuary 2020YTD
Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg)1.92%1.92%
ICE BofAML U.S. High Yield Index (HY Bonds)0.00%0.00%
S&P/LSTA Leveraged Loan Index (Senior Secured Loans)0.56%0.56%

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 January: Leveraged credit continued its year-end rally during the first half of January amid an improving macroeconomic backdrop including the signing of the long-awaited phase one trade deal between the U.S. and China. However, month-to-date gains in high yield were subsequently erased alongside an uptick in equity volatility as markets weighed the impact of the coronavirus on global growth. Senior Secured Loans gave up some of their gains but still posted a 0.56% return.1 During the last week of January, HY Bond mutual funds saw their biggest weekly outflow since August 2019 as demand waned amid market jitters.2 Although Senior Secured Loans recorded net inflows for the month of $106 million, the asset class has still experienced outflows for 60 of the last 63 weeks, and bank loan mutual funds lost $38.3 billion of AUM in 2019.2 Meanwhile, the Barclays Agg posted a strong return (1.92%) in January following three months of roughly flat returns.3 Benefiting from its high sensitivity to duration, the Barclays Agg appreciated as U.S. Treasury yields fell roughly 40 bps throughout the month.

A tale of two halves: Performance by both credit rating and asset class varied drastically between the first half of January and the second. Both HY Bonds and Senior Secured Loans started the year strong, with CCC rated credits in each asset class outperforming their higher-rated counterparts on what appeared to be a broad “risk-on” sentiment throughout markets. As news of the coronavirus outbreak spread, the markets diverged. High yield spreads widened by 48 bps over the course of the month, the largest monthly spread widening since May 2019, as bonds gave up their month-to-date gains and ended January flat. Lower-rated HY Bonds fared the worst, as CCCs ended the month down -0.44% followed by single B rated at -0.30%.4  BB rated bonds returned 0.35%,4 benefiting from both their higher credit rating and longer duration. It was a different story for loans. Senior Secured Loans lost some of their early January gains, but still posted positive performance led by the lowest-rated loans. CCCs returned 1.29% followed by single B rated loans, which returned 0.66%, and BBs, which returned 0.30%.1

Key takeaways

  • January was a mixed month for leveraged credit.
  • HY Bonds ended January flat while Senior Secured Loans returned 0.56%.
  • The duration-sensitive Barclays Agg rallied as rates fell over 40 bps over the course of the month.

  • S&P/LSTA Leveraged Loan Index.

  • J.P. Morgan.

  • Bloomberg Barclays U.S. Aggregate Bond Index.

  • ICE BofAML U.S. High Yield 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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