Declining long-term rates have begun to shift the technical picture in credit markets, which bear monitoring going forward.

The recovery in markets continued in July as optimism surrounding reopening and further stimulus measures outweighed fears of rising cases. HY Bonds and Senior Secured Loans returned 4.78% and 1.96%, respectively. Interest rates fell steadily throughout the month, boosting the duration-sensitive Barclays Agg, which returned 1.25%.

HY Bonds and Senior Secured Loans outperformed the Barclays Agg as retail inflows supported the leveraged credit markets on the back of strong monthly returns for U.S. equities.

In a remarkable turnaround from last year’s pervasive negativity, credit markets rallied strongly in January.

It was a volatile start to the year for most major asset classes. Ongoing COVID concerns, elevated inflation, rising interest rates and a hawkish Fed roiled markets for much of the month.

Credit markets rose through the first few weeks of the month on stimulus optimism and firm technicals in the loan market. However, equity volatility weighed on both asset classes in January’s final week

Following a month of heightened volatility, the leveraged credit markets rebounded in January. High yield bonds posted their largest monthly return since 2009 and senior secured loans erased all of the declines experienced in December.

January’s volatility spilled into February with most major asset classes posting another monthly decline. Continuing concerns over inflation, interest rate volatility and the impending Fed tightening cycle weighed on markets to start the month before focus shifted squarely to geopolitical tensions.

Bonds were tested by a sharp interest rate spike and declined slightly alongside equities over the last two weeks of February but remained positive on the month, returning 0.35%. Loan prices remained firm, as the asset class outperformed bonds, returning 0.59%.

The last week of February saw a global sell-off in risk assets as markets reacted to news of the coronavirus. Leveraged credit markets slid alongside a steeper drop in equities. The Barclays Agg benefited from its long duration, returning 1.80% as rates hit all-time lows during the month.