Credit market commentary

Credit market commentary: November 2019

Leveraged credit rose in November, with loans outperforming HY Bonds. The duration-sensitive Barclays Agg was unable to recover from an early-month rate spike, ending down slightly on the month.

December 5, 2019 | 4 minute read

Data as of November 30, 2019 unless otherwise noted

Performance (total returns)

BenchmarksNovember 2019YTD
Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg)-0.05%8.79%
ICE BofAML U.S. High Yield Index (HY Bonds)0.27%12.07%
S&P/LSTA Leveraged Loan Index (Senior Secured Loans)0.59%6.94%

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

Leveraged credit was positive in November: Leveraged credit markets rose in November, with Senior Secured Loans outperforming HY Bonds after posting a negative return the month before.1,2 Senior Secured Loans benefited from a sharp deceleration in outflows from bank loan mutual funds after the U.S. Federal Reserve signaled a pause in cutting interest rates. Still, investor demand for floating-rate Senior Secured Loans has remained somewhat muted against the backdrop of three quarter-point rate cuts so far in 2019. Following 14 straight monthly outflows, bank loan mutual fund AUM has declined from a little over $108 billion to $67 billion.3 While new collateralized loan obligation formation has more than made up for this decline in demand, withdrawals from bank loan mutual funds have been a drag on Senior Secured Loan price appreciation for much of 2019.4 HY Bond returns were impacted by a small outflow from HY Bond mutual funds and higher-than-average new issue volume in November, with B rated bonds providing the bulk of returns.4 After recording a positive return in October, the Barclays Agg reversed course and posted a slightly negative return in November.5 Benefiting from its high duration, the Barclays Agg has gained this year as Treasury yields have declined across the curve.

High-rated credit continues to outperform: Lower-rated credits were a drag on leveraged credit returns in November, continuing a trend that has persisted throughout much of 2019. Last month, CCC rated bonds and CCC rated Senior Secured Loans returned 2.21% and -0.47%, respectively.6,7 By comparison, BB rated bonds and BB rated Senior Secured Loans returned 0.56% and 0.52%, respectively.8,9 For added context, BB rated bonds have generated a year-to-date return of 14.30%, while CCC rated bonds have generated a year-to-date return of just 3.28%. The distribution of returns continues to highlight the effect of moderating U.S. economic growth and the increased risk aversion shown by investors in recent months. Notably, B rated bonds and B rated loans proved to be the sweet spot for investors seeking value in the leveraged credit market in November. Following four months of widening, CCC rated bond yields stood at 13.08% as of November 30, 2019.6 By comparison, B rated bond yields ended November at 5.96%.10

Key takeaways

  • Leveraged credit rose in November, with loans outperforming HY Bonds.
  • The duration-sensitive Barclays Agg was unable to recover from an early-month rate spike, ending down slightly on the month.

  • S&P/LSTA Leveraged Loan Index.

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

  • Refinitiv Lipper.

  • S&P Leveraged Commentary and Data.

  • Bloomberg Barclays U.S. Aggregate Bond Index.

  • ICE BofAML U.S. CCC Rated Bond Index.

  • S&P/LSTA CCC Rated Loan Index.

  • ICE BofAML U.S. BB Rated Bond Index.

  • S&P/LSTA BB Rated Loan Index.

  • ICE BofAML U.S. B Rated Bond 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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