• Many income-oriented investors may find themselves in a difficult position today as yields across a spectrum of asset classes have tightened significantly over the past year.
  • While credit markets have rallied since February 2016, risk premiums have declined. For example, yields on high yield energy bonds have compressed from nearly 20% in February 2016 to approximately 6% today.1 Likewise, yields across the broader high yield bond market have decreased by approximately 3% in the same time frame.2
  • On Wednesday, the U.S. dollar reversed a Tuesday slide as investors digested the inflation data along with Yellen’s note in a San Francisco speech that “the economy is near maximum employment and inflation is moving toward our goal.”3
  • As the chart highlights, however, senior secured loans and high yield bonds continue to offer investors a yield advantage over investment grade securities. For example, yields on senior secured loans and high yield bonds are currently 6.2% and 5.7%, respectively, compared to just 3.4% for investment grade bonds.4,5,6 Meanwhile, the yield on 10-year Treasuries settled below 2.4% this week.7

1 Bank of America Merrill Lynch U.S. High Energy Index.
2 Bank of America Merrill Lynch U.S. High Yield Master II Index.
3 U.S. Federal Reserve, http://bit.ly/2l4p216.
4 Credit Suisse Leveraged Loan Index (based on a three-year-life).
5 Bank of America Merrill Lynch U.S. High Yield Master II Index (yield-to-worst).
6 Bank of America Merrill Lynch U.S. Corporate Master Index (yield-to-worst).
7 Federal Reserve Bank of St. Louis, http://bit.ly/29ecBfp.

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