Chart of the week: Bond and loan performance during periods of rising rates


  • Interest rate movements have been one source of volatility within both equity and fixed income markets recently. With Wednesday’s release of the minutes from January’s Federal Reserve meeting, this week was no exception. The yield on the 10-year U.S. Treasury note rose approximately 6 basis points on Wednesday and reached a new four-year high, before settling later in the week.4
  • The move was largely a response to the FOMC’s acknowledgment that recent economic conditions may warrant a “gradual upward trajectory of the federal funds rate.”8 However, this week’s move was just a continuation of the trend that has prevailed in 2018 and, more generally, since interest rates’ recent low point in September 2017.4
  • While rising rates may often be considered anathema to fixed income investors, the chart tells a more complete story. Specifically, high yield bonds and senior secured loans, which typically feature lower durations than the investment grade fixed income market, have posted solid returns during periods of rising interest rates.17
  • High yield bonds and senior secured loans generated competitive returns in each of five periods sampled since 1990 when interest rates experienced short-term spikes that averaged approximately 1.4%.4,17 Senior secured loans’ and high yield bonds’ average total returns during those five periods were 8.4% and 6.8%, respectively, compared to an average total return of -0.8% for investment grade bonds.4,17

1 ICE BofAML U.S. High Yield Master II Index.
2 Credit Suisse Leveraged Loan Index.
3 ICE BofAML U.S. Corporate Master Index.
4 Federal Reserve Bank of St. Louis, 10-year yield, http://bit.ly/29ecBfp.
5 Federal Reserve Bank of St. Louis, S&P 500, http://bit.ly/2d3pN5b.
6 Thomson Reuters Lipper.
7 ICE BofAML U.S. 10-year Treasury Index.
8 U.S. Federal Reserve, http://bit.ly/2BII3R6.
9 Bureau of Economic Analysis, http://bit.ly/2GEDTsG.
10 U.S. Bureau of Labor Statistics, http://bit.ly/2iYbHWM.
11 U.S. Bureau of Labor Statistics, http://bit.ly/2jKLr2f.
12 MarketWatch, http://on.mktw.net/2ovHHFp.
13 Federal Reserve Bank of St. Louis, 30-year yield, http://bit.ly/29ecFfc.
14 Econoday, http://bit.ly/1iJOdAP.
15 Bloomberg, based on CME data.
16 MarketWatch, http://on.mktw.net/2FucURr.
17 Bloomberg as of February 22, 2018. Investment grade bonds represented by the Barclays U.S. Aggregate Index. High yield bonds represented by the ICE BofAML U.S. High Yield Master II Index. Senior secured loans represented by the Credit Suisse Leveraged Loan Index.


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.