- Global equity and fixed income markets experienced significant volatility in Q4 2018 as a broad-based “risk-off” sentiment quickly escalated. In December, senior secured loan and high yield bond prices reached their lowest point in approximately 2.5 years driven by large investor outflows.1
- Bank loan mutual funds recorded their largest ever weekly outflow in the last week of December and their first quarterly outflow in a year.2 Meanwhile, investors withdrew $6.8 billion from high yield bond mutual funds in December, capping the asset class’s largest ever annual outflow.2
- The sell-off came at a time when corporate default rates remain near historic lows. High yield and senior secured loan defaults ended December at 1.8% and 1.6%, respectively.3
- The sharp sell-off in the fourth quarter, part of which has been recovered in January, serves as a timely reminder of how quickly sentiment can shift. In these environments, technicals (supply/demand), rather than fundamentals, tend to drive prices. These periods may create opportunities for managers with the expertise and liquidity to take advantage of investments arising from the volatility.
1 Senior secured loans are represented by the Credit Suisse Leveraged Loan Index. High yield bonds are represented by the ICE BofAML U.S. High Yield Index.
2 JPM High-Yield and Leveraged Loan Morning Intelligence, December 21, 2018, based on fund flow data from Thomson Reuters Lipper.
3 Default rates are based on data from S&P Global Market Intelligence.
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.