CIO’s Perspective: 2016 Half-Time Leveraged Credit Review and Outlook

Posted on July 5, 2016

1st Half 2016 Review

In early 2016, concerns about global economic growth, including within the United States, placed pressure on commodity prices and resulted in a sell-off in the leveraged credit market. However, the market’s mood shifted as constructive news flow in the form of more accommodative monetary policy from central banks, improving economic conditions and a recovery in oil prices began to positively affect the psyche of market participants.

As retail investors became more comfortable with the risks in the high yield market, high yield bond mutual funds experienced significant inflows, including approximately $14bn from mid- February through April 30th. These flows, coupled with weak primary market activity, provided a tailwind to complement a better-than-feared macroeconomic back-drop, which resulted in a strong bid in the secondary market for leveraged credit, especially high yield bonds. After a brief but sharp decline following June 23rd when British voters surprised markets and decided to “Brexit” from the European Union, leveraged credit markets recovered from losses earlier in the year to produce strong performance during the first six months of 2016.

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