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Weekly Market Summary

Sep 18 to Sep 22, 2023

View Current Performance

Extra Credit*

  • For investment-grade credit, fundamentals still look strong with the one blemish being a decline in interest coverage. On the flip side, cash balances have improved as companies have become more conservative with share repurchases and capital expenditures. 
  • While interest coverage has broadly fallen for non-financial investment-grade companies (declining from 15.7 in 2Q22 to 12.6 in 2Q23), it still remains above pre-COVID levels. Most of this decline can be attributed to rising interest costs, but the effects of the higher rate environment have not been felt on the same level across sectors. Interest coverage will likely become more of a concern in as we enter a potentially higher-for-longer rate environment.
  • After reaching lows in net leverage and highs in interest coverage in 4Q22, the high-yield market has posted two straight quarters of increasing leverage and declining coverage. The decline in interest coverage was more pronounced, falling 0.3x quarter-over-quarter, while leverage was comparatively flat, increasing 0.1x quarter-over-quarter. Fundamentals are still strong, but it appears that 4Q22 could have been the peak and fundamentals may continue to deteriorate. BBs saw the biggest decrease in interest coverage, as a net $44 billion of fundamentally stronger rising stars exited the index in 2Q23. Consumer cyclicals was the sector with the largest     deterioration in both leverage and coverage. 
  • On the asset-back securities (ABS) front, following the completion of Frontier's landmark $1.59 billion ABS transaction, the fiber ABS sector has been drawing significant attention as a potential source of funding for large corporate issuers in the broadband internet sector. Since the start of the year, the sector has more than doubled in size from $3.1 billion to $7.2 billion and is expected to continue to grow as other companies engaging in FTTP (fiber-to-the-premises) build programs and enterprise dark fiber/lit services evaluate ABS financing opportunities over time. 
  • The trailing 12-month default rates for bank loans and high-yield bonds, excluding distressed exchanges, finished the month at 2.24% and 1.29%, respectively, down from 2.33% and 1.18% from July. 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 9/19/23.

Yield as of:
Sep 22, 2023
High-Yield Bonds
Investment-Grade Corporates
Last Week
Prior Week
Start of the Year
Option Adjusted Spread as of:
Sep 22, 2023
High-Yield Bonds
Investment-Grade Corporates
Last Week
384 bps
510 bps
108 bps
Prior Week
374 bps
507 bps
110 bps
Start of the Year
469 bps
592 bps
121 bps
Prices as of:
Sep 22, 2023
High-Yield Bonds
Investment-Grade Corporates
Last Week
Prior Week
Start of the Year

*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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