There was a remarkable rally last month as second quarter earnings results were better than feared and markets appear unconvinced that the Fed will be able to hike rates as aggressively going forward, especially given signs of a slowing economy.

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

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.

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.

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

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.

Credit markets continued their fast start to the year, posting solid returns in February. The duration-sensitive Barclays Agg declined modestly, underperforming credit indices.

Investments with lower durations, such as senior secured loans, have outperformed so far in 2018 and may display lower levels of volatility if U.S. Treasury yields rise further.