Credit market commentary

Credit market commentary: July 2019

Leveraged credit gains in July | Higher-rated credit continues to outperform

August 5, 2019 | 2 minute read

Data as of July 31, 2019 unless otherwise noted

Performance (total returns)

BenchmarksJuly 2019YTD
Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg)0.22%6.35%
ICE BofAML U.S. High Yield Master II Index (HY Bonds)0.51%10.72%
S&P/LSTA Leveraged Loan Index (Senior Secured Loans)0.80%6.58%

Performance data quoted represents past performance and is no guarantee of future results. An investment cannot be made directly in an index.

Leveraged credit gains in July: The leveraged credit markets rose in July, with senior secured loans outperforming high yield bonds for the first time since May. Both high yield bonds and senior secured loans gained amid rising U.S. equity prices and expectations of a rate cut by the Federal Reserve. After rallying significantly in June, high yield bonds recorded a small gain in July as inflows into the asset class accelerated.¹ High yield bond mutual funds pulled in approximately $3.3 billion in July and have now experienced $15.7 billion in inflows year to date.² Senior secured loans returned 0.80% in July even as outflows from bank loan mutual funds persisted. Investors pulled nearly $2.0 billion from bank loan mutual funds in July, which marked the 10th straight monthly outflow from the asset class. More broadly, the Barclays Agg eked out just a small gain in July as U.S. Treasury yields remained relatively stable leading up to the Fed’s first rate cut since 2008.

Higher-rated credit continues to outperform: Drilling down deeper into leveraged credit returns, higher-rated areas of the market generally outperformed their lower-rated peers. In July, BB rated bonds returned 0.6%, while CCC rated bonds returned -0.07%.3,4,5 Similarly, BB rated senior secured loans returned 0.79% in July, while CCC rated senior secured loans returned 0.53%. Higher-quality areas of the market have outpaced their lower-quality peers throughout 2019 amid slower growth and declining U.S. Treasury yields. For context, BB rated bonds and BB rated senior secured loans have returned 11.4% and 7.1%, respectively, year to date.3,6 By comparison, CCC rated bonds and CCC rated senior secured loans have returned 8.5% and 5.3%, respectively, through the same period.5,6

Key takeaway

Leveraged credit rose this month alongside equities, with loans outperforming high yield for the first time since May. The Agg was slightly positive as rates remained relatively rangebound leading up to the Fed’s July 31 rate decision.

  • ICE BofAML U.S. High Yield Master II Index.

  • Thomson Reuters Lipper.

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

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

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

  • S&P/LSTA Leveraged 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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