Senior Loan & High Yield Review – 1st Quarter 2018
Macro Overview

As we entered 2018, we believed that inflation expectations were too low given the relative health of the U.S. economy and the tightening labor market. This proved to be accurate as inflation data, specifically wage data, began to show modest signs of improvement in the first quarter. This wage improvement was the primary catalyst for one of the largest upward moves in interest rates since the Taper Tantrum, in May 2013. Interest rates, as measured by the 10-year U.S. Treasury, increased 33 basis points (bps) in the quarter to 2.74% from 2.41% and were up 70 bps from the September low of 2.04%. Notably, the yield touched 2.95% during the quarter but later declined. The bonds most susceptible to changes in interest rates moved lower as rates climbed. These include investment grade corporate bonds, which were down 2.20% over the quarter, and a broader measure of the overall bond market, the Bloomberg Barclays U.S. Aggregate Index which was down 1.46%. Despite equity market volatility and higher interest rates, high-yield bonds and senior loans fared well on a relative basis. High-yield bonds were down 0.92% while senior loans were up 1.45%.

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Posted on Thursday, April 19, 2018 @ 2:12 PM

These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.