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.

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

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.

Credit markets experienced continued positive momentum in July amid positive economic data, moderating inflation and better-than-expected Q2 earnings reports.

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.

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

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%.

The duration-sensitive Barclays Agg posted its third positive return of the year in June as long-term interest rates declined slightly.

Volatility roared back in June. High yield bonds lost -6.8%, their worst month of 2022, while loans were down -2.16%. This marked the first back-to-back monthly declines of greater than 2% for loans since 2008.

Driven by stronger than expected economic data in June, credit markets turned higher as senior secured loans returned 2.26% while high yield bonds returned 1.63%.