High yield bonds and senior secured loans gain in June. Yield curve flattens on rising rate expectations.

Leveraged credit rebounds in June | HY Bonds benefit from repriced rate expectations

The recovery in markets continued in June, but at a slower pace amid concerns over rising COVID cases. HY Bonds and Senior Secured Loans still ended the month up, returning 0.97% and 1.14%, respectively, capping off the best quarter for each market since Q3 2009. Interest rates spiked early in the month before declining slightly, and the duration-sensitive Barclays Agg returned 0.63%.

Interest rate volatility continued to weigh on markets for much of the month.

Sharply higher interest rates, geopolitical tensions, a volatile commodities complex, inflation, and the ultimate course of the Fed’s tightening cycle have caused volatility for much of the quarter as markets have been forced to quickly recalibrate expectations given these rapidly evolving situations.

Amid the emergence of significant regional and global bank stress, fixed income volatility spiked in March as the MOVE Index rose to levels last seen in 2008.

Benefiting from their floating rate coupon and position at the top of the capital structure, senior secured loan prices remained relatively steady in the face of rising short-end U.S. Treasury yields and a decline in U.S. equity prices.

Treasury rates fell following the Fed's dovish tone at their March meeting, boosting the more duration-sensitive Barclays Agg.

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.

Markets traded sideways for much of the month as inflation concerns and cryptocurrency market volatility weighed on sentiment.