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Weekly Market Summary

Jul 24 to Jul 28, 2023

View Current Performance

Extra Credit*

  • The recent rally in stocks from the undervalued levels of the beginning of the year has led some investors to believe that equities are now trading near their estimated fair value. With many stocks no longer trading at undervalued levels and earnings under pressure from slowing economic growth, further gains in the stock market may be muted in the second half of 2023. On the other hand, corporate bonds are still trading at undervalued levels, and the economy, while slowing, has seen recession expectations steadily decrease. All of this means that corporate bonds may offer investors an adequate margin of safety given limited default or downgrade risk and more attractive returns than stocks for the rest of 2023.
  • A surge in new-issue activity in the leveraged-loan market has pushed the total transaction value of deals over $14 billion. Borrowers have been tapping into investor demand that has led to a strong run in the secondary market in recent weeks with new money merger-and-acquisition (M&A) deals along with opportunistic offerings, including a healthy mix of dividend recapitalizations, refinancings and extensions, and a large repricing.
  • Within the high-yield bond market, the difference between the yield of bonds with the lowest and highest liquidity (adjusted for downgrade, interest-rate and default risk) has fallen by 30-40% since 2019. This may be attributed to the decline and flattening of the positive relationship between yields and illiquidity. In the past, high-yield bond yields increased monotonically as liquidity declined. However, this relationship has changed recently, and bonds with medium liquidity have virtually the same yield as bonds with the worst liquidity.
  • The trailing 12-month default rates for bank loans and high-yield bonds, excluding distressed exchanges, finished the month at 2.41% and 1.64%, respectively, up from 2.41% and 1.49% from May. The long-term historical default rate for loans and high-yield bonds is 3.1% and 3.2%, respectively.

Sources: Bloomberg and JP Morgan as of 7/24/23.

Yield as of:
July 28, 2023
High-Yield Bonds
Bank-Loans
Investment-Grade Corporates
Last Week
8.37%
10.98%
5.42%
Prior Week
8.32%
10.95%
5.37%
Start of the Year
8.96%
10.69%
5.34%
Option Adjusted Spread as of:
July 28, 2023
High-Yield Bonds
Bank-Loans
Investment-Grade Corporates
Last Week
371 bps
535 bps
107 bps
Prior Week
376 bps
534 bps
113 bps
Start of the Year
469 bps
592 bps
121 bps
Prices as of:
July 28, 2023
High-Yield Bonds
Bank-Loans
Investment-Grade Corporates
Last Week
$89.65
$94.15
$90.77
Prior Week
$89.68
$94.16
$91.06
Start of the Year
$86.22
$91.89
$89.37

*Source: Morningstar®, Bloomberg, Credit Suisse. OAS is Options Adjusted Spread. 4-year discount margin is used for spread for bank loans. Yield quoted is yield-to-worst or equivalent calculation. YTD Low / High for yields are based on end of week and not intraday movements. Indexes and sub-indexes: Investment-grade corporates represented by Bloomberg US Corporate Bond Index. High-yield bonds represented by Bloomberg US Corporate High Yield Index. Bank loans represented by Credit Suisse Leverage Loan Index. The red and green arrows depicted under Yields, Option Adjusted Spreads, and Prices indicate a higher or lower value from the previous week.

Past performance does not guarantee future results. Index performance is not indicative of fund performance. Indexes are unmanaged and it is not possible to invest directly in an index.

Investors should consider a fund’s investment goal, risks, charges, and expenses carefully before investing. The prospectus and/or the applicable summary prospectus contain this and other information about the Fund and are available from AristotleFunds.com. The prospectus and/or summary prospectus should be read carefully before investing.

Investing involves risk. Principal loss is possible.

Foreside Financial Services, LLC, distributor.

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