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Weekly Market Summary

Jul 31 to Aug 4, 2023

View Current Performance

Extra Credit*

  • Treasury yields increased for the week, with the intermediate sector underperforming along the curve. In the week, Fitch downgraded the U.S. sovereign rating from AAA to AA+, citing fiscal deterioration, a growing government debt burden, and eroded fiscal confidence stemming from repeated debt-limit standoffs. While the Treasury market was highly volatile in the wake of S&P 500 Index’s downgrade in 2011, the underpinnings of the U.S. economy then were very different than they are now, and expectations for similar levels of volatility across the Treasury curve remained low.
  • Recovery rates for high-yield bonds have slid to a record low with five of the 12 recoveries tracked over the last year in the single digits. Meanwhile, recovery rates for leveraged loans are well below their historical average and at a record low due to the impact from the loan-only issuer base. Recoveries for high-yield bonds and bank loans on a last-12-months basis are 19.6% and 39.7%, respectively, which compare to their 25- and 24-year annual averages of 40.2% and 64.3%, respectively.
  • Default activity moderated in July, registering the fewest number of defaults/distressed exchanges (4) and second lowest volume impacted ($3billion) in 2023. The high-yield bond default rate also declined month-over-month, while the leveraged-loan default rate increased to a new two-year high. Specifically, two companies defaulted and two completed a distressed exchange during the month totaling $3 billion in bonds and loans—$495 million in bonds and $2.5 billion in loans.
  • The trailing 12-month default rates for bank loans and high-yield bonds, excluding distressed exchanges, finished the month at 2.33% and 1.18%, respectively, up from 2.41% and 1.64% 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 8/2/23.

Yield as of:
Aug 4, 2023
High-Yield Bonds
Bank-Loans
Investment-Grade Corporates
Last Week
8.51%
11.01%
5.47%
Prior Week
8.37%
10.98%
5.42%
Start of the Year
8.96%
10.69%
5.34%
Option Adjusted Spread as of:
Aug 4, 2023
High-Yield Bonds
Bank-Loans
Investment-Grade Corporates
Last Week
390 bps
538 bps
110 bps
Prior Week
371 bps
535 bps
107 bps
Start of the Year
469 bps
592 bps
121 bps
Prices as of:
Aug 4, 2023
High-Yield Bonds
Bank-Loans
Investment-Grade Corporates
Last Week
$89.20
$94.12
$90.01
Prior Week
$89.65
$94.15
$90.77
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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