- As we move into the traditionally light trading week ahead of Labor Day and toward the homestretch of 2017, year-to-date performance trends within the corporate credit market this year are generally similar to those of 2016.
- Returns are more moderate across the spectrum this year, however both high yield bonds and senior secured loans are on track for another year of positive returns.16 As was the case in 2016, CCC rated bonds and loans continue to outperform higher-rated BB credits year to date.17,18
- Benefiting from generally supportive oil prices, still-low Treasury yields and limited volatility, high yield bonds have outperformed both senior secured loans and investment grade corporate bonds year to date.1,4,16,19
- Returns on senior secured loans have been relatively more limited as interest rate and inflation pressures have gradually moderated during the course of 2017.4,16,19
- Looking ahead, performance could hinge on the outcome of both economic and political matters. Investors will look to see if moderating inflation pressures indeed reflect “idiosyncratic factors,” as the Fed has noted, or if they are a more-permanent sign of slowing economic growth.9 Politically, investors have begun to train their eyes on the rhetoric surrounding Washington’s ability to avoid a potential government shutdown this fall.20
1 Federal Reserve Bank of St. Louis, http://bit.ly/295DSwP.
2 Bank of America Merrill Lynch High Yield Master II Index.
3 Thomson Reuters Lipper.
4 Federal Reserve Bank of St. Louis, http://bit.ly/29ecBfp.
5 Credit Suisse Leveraged Loan Index.
6 J.P. Morgan High-Yield and Leveraged Loan Morning Intelligence, August 25, 2017.
7 The Financial Times, http://on.ft.com/2vnm8st.
8 Reuters, http://reut.rs/2wNb37T.
9 U.S. Federal Reserve, http://bit.ly/2wQAMtE.
10 Bloomberg, based on CME data.
11 Federal Reserve Bank of St. Louis, http://bit.ly/29ecFfc.
12 Bloomberg, https://bloom.bg/2wEOLG9.
13 U.S. Federal Reserve, http://bit.ly/2vvnFwc.
14 Bloomberg, https://bloom.bg/2vbF4yH.
15 U.S. Federal Reserve, http://bit.ly/29y0IjN.
16 Bank of America Merrill Lynch U.S. High Yield Master II Index, Credit Suisse Leveraged Loan Index, Bank of America Merrill Lynch U.S. Corporate Master Index, as of August 24, 2017.
17 Bank of America Merrill Lynch U.S. High Yield CCC & Lower Rated Index, Bank of America Merrill Lynch U.S. High Yield BB rated Index.
18 CCC and BB rated components of the Credit Suisse Leveraged Loan Index.
19 Bureau of Labor Statistics, http://bit.ly/2jKLr2f.
20 Roll Call, http://bit.ly/2w1Bplx.
The Alternative Thinking Week in Review market commentary and any accompanying data (“Market Commentary”) is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The Market Commentary is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such Market Commentary. The Market Commentary should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the Market Commentary or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.