- 10-year U.S. Treasury yields briefly jumped above 3.2% this week, reaching a 7-year high as investors digest a new round of strong U.S. economic data.1 Year to date, the 10-year Treasury yield has risen approximately 80 bps compared to a decline of approximately 64 bps in the same time frame last year.1
- Traditional fixed income asset classes have fallen as rates have climbed since January. As the chart shows, investment grade and corporate bonds have posted negative YTD returns and are far below their YTD performances in 2017.2 Despite the recent spike, interest rates still remain low from a historical perspective.
- Low-duration assets, such as senior secured loans, high yields bonds and CLOs, which are less sensitive to interest rate movements than their investment grade peers, have all generated positive YTD returns.2
- Notably, senior secured loans are the only asset class whose YTD performance has exceeded its 2017 performance through the same period.2 Senior secured loans have drawn significant investor inflows in 2018, generally benefiting from their floating rate coupon and position as a potential hedge against rising interest rates this year.
- Within a rising rate environment, investing in a broad range of fixed income asset classes with varying sensitivities to changes in interest rates may help diversify a traditional fixed income portfolio while also providing a competitive level of income.
1 Federal Reserve Bank of St. Louis, https://bit.ly/29ecBfp.
2 Bloomberg, Q1–Q3 for both 2017 and 2018. Investment grade bonds represented by the Bloomberg Barclays U.S. Aggregate Bond Index. Corporate bonds represented by the ICE BofAML U.S. Corporate Master Index. Senior secured loans represented by the Credit Suisse Leveraged Loan Index. CLOs represented by the JPMorgan CLOIE. High yield bonds represented by the ICE BofAML U.S. High Yield Master II Index.
The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week 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 chart of the week 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 chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.