CCC Leads High Yield in 4Q; Loans Finish Strong; Quality Beckons
- The ICE BofAML High Yield Cash Pay Index delivered a strong 2.59% return in the fourth quarter. CCC-rated bonds outperformed with a return of 3.32% compared to 2.37% for BBs and 2.89% for Bs.
- High yield fundamentals remain stable in most industries, and we are not very concerned about an imminent recession or a general credit sell-off, but we are cautious about certain industries including energy, retail and wireline telecom. Considering spreads and interest rates are relatively low, to protect the downside, now may be a good time to favor high quality issues with a duration of less than three years.
- The JPMorgan Leveraged Loan Index posted a very strong fourth quarter with a 1.85% return, boosting its full-year return to about 8.6%. While retail outflows dampened 2019, they decelerated somewhat as collateralized loan obligation (CLO) formation provided continued support.
- The default rate was a very healthy 1.64%, down about eight basis points (bps) for the year. The long-term average is about 3%, according to JPMorgan.
The commentary is the opinion of the subadviser. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.
Past performance is not indicative of future results.