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Market Review and Outlook 1Q21 - Leveraged Finance
As rates and inflationary expectations rose, investors in search of higher yields returned to the leveraged loan market in the first quarter. That allowed us to explore a number of new relative value opportunities. We also held on to the names we felt had the liquidity to ride through the pandemic lockdown, and we’re starting to see that benefit now.
In the high yield market, the three key dynamics were the COVID-19 vaccine rollout, the Treasury sell-off, and a record increase in supply. The ICE BofA US High Yield Index had a 0.81% return. The Index ended the quarter with a yield of 4.36%. The BB index ended with a yield of 2.58%. The single-B index ended at 3.92%, and CCCs tightened to 6.3%.
Market Review and Outlook 1Q21 - Investment Grade and Tax-Exempt Fixed Income
Steeper Curve, Record Liquidity, and Robust Growth Prospects
With rates rising every month of the first quarter and negative total returns across the board, one might assume that would lead to massive outflows in the investment grade taxable category. On the contrary, it was the exact opposite. An unquenchable thirst for yield led to consistent inflows.
Hedging Inflation with Bank Loans and High Yield Bonds
According to a Morningstar analysis of nearly 100 asset classes and strategies over the 20 years ended December 31, 2021, bank loans and high yield bonds ranked first and fifth, respectively, in their correlations with inflation. Meantime. Bloomberg data shows that in the 18 periods since January 1999 when the 10-year Treasury bond yield rose 50 basis points or more, bank loans performed positively in 17. High yield bonds performed almost as well, turning in positive performance in 14 of these periods.
Market Review and Outlook 4Q20 - Leveraged Finance
Resilience Abounds
For 4Q, the JP Morgan Leveraged Loan Index returned +3.78%, bringing the 2020 return to +3.19%, but loans drew more attention in early January as rates rose. The ICE BofA US High Yield Index had a 6.48% return. The confluence of election results and COVID vaccine announcements set the stage for a powerful rally, led by companies with strong business models and a significant liquidity runway to deal with the pandemic.
Market Review and Outlook 4Q20 - Investment Grade and Tax-Exempt Fixed Income
Will Fiscal and Monetary Policies Make America Reflate Again?
For all the uncertainty about the pandemic, elections, and fiscal support from Washington, the fourth quarter of 2020 saw a liquidity driven rally led by the lowest quality, highest beta parts of the investment grade taxable market. According to Deutsche Bank, 38 of the 39 asset classes it follows were up in the quarter, very much like 4Q19.
Look for High Yield Durability in 2021
Don’t let record low rates sway you. High yield still has the potential to enhance income and total return, lower interest rate volatility, and diversify risk in fixed income portfolios.
Time to Hash Over Your Cash Stash?
Obsession with liquidity via money market funds comes at a price, which is why investors may want to consider short- and ultra short-term bond funds with higher yields as rates stay lower for longer.
News & Insights Archive