Insights

Steps to reopen the economy and progress toward a COVID-19 vaccine created an optimistic sentiment for much of the month, as HY Bonds, Senior Secured Loans and structured products posted strong returns. Interest rates remained relatively rangebound and the duration-sensitive Barclays Agg had a slight gain.

Markets broadly rallied in April on the back of unprecedented stimulus by Congress and the Federal Reserve. HY Bonds posted their strongest monthly performance since January 2019 while Senior Secured Loans recorded their largest one-month gain since 2009. A decline in interest rates following an early-month spike boosted the duration-sensitive Barclays Agg.

We examine an opportunity in credit markets recently impacted by action from the Federal Reserve.

Are wide spreads a signal to buy? Our chart looks at high yield bonds amid the recent sell-off and compares correlation vs. the Q4 2008 sell-off.

In this note, we take a look at the current corporate credit market impact, the effects of recent Federal Reserve policy response and the best course of action we see for investors moving forward.

HY Bonds and Senior Secured Loans each endured their worst month since 2008, ending down -11.76% and -12.37%, respectively, as the global rout in risk assets continued. Historically, credit markets have been resilient, performing well following sell-offs and rewarding investors for buying in at or near current spread levels.