March 27 - April 2, 2020
Last week, markets received two “shots in the arm” in the form of unprecedented fiscal and monetary stimulus. In our view, the CARES Act, which was signed into law by President Trump on March 27th and is expected to provide the economy with a $2 trillion stimulus, has done more to stabilize leveraged credit markets than any actions thus far taken by the Fed, as such legislation more directly addresses the macro and fundamental challenges presently facing high yield companies. That said, the Fed’s recent actions, which have included several lending facilities designed to provide support to numerous fixed income markets, has also helped further stabilize the high yield and leveraged loan markets. Largely as a result of these actions, high yield bonds and leveraged loans rallied between March 23rd and March 31st. This rally included the best five-day return for the high yield market dating back to 1996, even eclipsing any five-day rally witnessed during the 2008-09 Great Recession and its ensuing recovery.
However, following a sobering press conference delivered by the White House Coronavirus Task Force on the evening of March 31st in which Americans were warned to essentially prepare for the worst over the next couple of weeks, market sentiment soured considerably. As part of this update, the federal government extended its guidelines for social distancing and mitigation efforts through April 30th, with many states and local governments decreeing similar policies.