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Corporate Credit Highlights
Glossary of Terms
JANUARY 2024

Corporate Credit Highlights

Highlights from investment-grade, bank-loan, and high-yield asset classes.

Monthly Return (%)
12/31/23
Year-to-Date Return (%)
12/31/23
Yield
12/31/23
Option-Adjusted Spread (BPS)
12/31/23
12/31/22
12/31/21
12/31/20
Investment-Grade Corporate Bonds
4.19
8.18
5.00 1
93
121
87
92
Single A Bonds
4.22
7.74
4.91
85
109
74
74
BBB Bonds
4.44
9.51
5.28
121
159
115
124
1-3 Year Credit
1.29
5.28
4.97
58
61
35
30
7-10 Year Credit
4.61
8.78
4.99
112
152
93
96
Long Credit
7.30
10.73
5.22
117
157
130
141
Monthly Return (%)
12/31/23
Year-to-Date Return (%)
12/31/23
Yield
12/31/23
Option-Adjusted Spread (BPS)
12/31/23
12/31/22
12/31/21
12/31/20
Bank Loans 2
1.61
13.04
10.60
528
652
439
486
BB Loans 3
1.18
10.05
8.74
315
363
307
305
B Loans 3
1.73
14.41
10.55
496
691
444
469
Loans priced over $90 3
1.38
12.27
9.77
418
497
417
422
Loans priced up to and including $90 3
3.39
17.24
19.75
1416
1419
1380
1258
Issues over $1 billion 3
1.75
13.31
10.35
476
596
395
414
Issues $201 million to $300 million 3
1.13
12.22
14.41
882
932
639
755
Monthly Return (%)
12/31/23
Year-to-Date Return (%)
12/31/23
Yield
12/31/23
Option-Adjusted Spread (BPS)
12/31/23
12/31/22
12/31/21
12/31/20
High Yield
3.73
13.44
7.59 1
323
469
283
360
BB Bonds
3.24
11.60
6.34
201
295
194
264
CCC Bonds
5.90
19.84
12.11
776
1008
549
658
Intermediate High-Yield Bonds
3.66
13.39
7.60
323
471
285
363
Long High-Yield Bonds
6.60
16.55
7.40
341
401
252
329

Source: Bloomberg, Credit Suisse and Morningstar® as of 12/31/23.

Investment-grade corporate bonds represent the Bloomberg US Credit Index and index components. This index measures the performance of investment grade, US dollar-denominated, fixed-rate, taxable corporate and government-related debt with at least 10 years to maturity. Bank loans represent the Credit Suisse Leveraged Loan Index and index components. This index is designed to mirror the investable universe of the U.S. dollar-denominated leveraged loan market. High yield represents the Bloomberg US Corporate High Yield Index and index components. This index covers performance for U.S. high-yield corporate bonds. An option-adjusted spread (OAS) is the measurement of the spread of a fixed-income security rate and the risk-free rate of return.

1 Yield quoted is yield-to-worst. Yield-to-worst is a measure of the lowest possible yield from purchasing a bond apart from a company defaulting.
2 Yields represent four-year effective yield. The effective yield is a financial metric that measures the interest rate (or coupon rate) return on a bond.
3 Yields represent three-year effective yield. The effective yield is a financial metric that measures the interest rate (or coupon rate) return on a bond.

HIGHLIGHTS

Investment Grade

  • Goldman Sachs Economic Trends on the Federal Reserve’s balance sheet: “Since last year, the Fed’s balance sheet has shrunk by roughly $1.2 trillion to $7.8 trillion, and balance sheet runoff has proceeded smoothly so far.” 1
  • JP Morgan Strategy 2023 recap and look ahead given spread and yield levels: “2023 was a tumultuous yet ultimately quite positive year for high-grade credit. Spreads were wider year-to-date for 27% of the year as the market digested a series of banking crises and worried about a recession yet spreads ended the year 39 basis points tighter. This was the largest annual spread tightening since 2019. Similarly, the J.P. Morgan US Liquid Index (JULI)  was negative year-to-date as recently as Nov. 1 yet finished the year up 8.5% for the best year since 2020. 2
  • BAML Strategy on investment-grade demand: “The recent drop in yields raises the question of how much the strong demand for investment-grade corporate bonds could be impacted. The answer is not much. While lower than in October, the current 5.5% yield of the J.P. Morgan US Liquid Index (JULI) (as of Dec. 9, 2023) is close to the index’s average over the past 12 months, the period when demand was investment-grade corporates was strong. On top of that, demand is likely to strengthen in December and into January on rising mutual fund inflows and declining FX hedging costs. Longer term demand for investment grade could be supported in 2024 by pension de-risking and re-allocation from money-market funds as we get closer to potential Fed rate cuts.” 3
  • Morgan Stanley Strategy on investment-grade supply in 2024: “We expect investment-grade gross supply to rise modestly to $1.3 trillion for 2024, up 8% year-over year, while net issuance comes down -7% year-over-year to $375 billion. 4

High-Yield Corporates

  • The Bloomberg US Corporate High Yield Index rose 13.45% in 2023 with CCCs (19.84%) outperforming Bs (13.78%) followed by BBs (11.60%) underperforming the overall high-yield index. 5
  • JP Morgan noting 2023 saw net high-yield outflows of -$7.9 billion with ETFs edging out a slight inflow on the year. This compares with overall high-yield flows of -$48.9 billon of outflows in 2022. 6
  • Citi Strategy on 2023 the high-yield primary market: “Total yearly issuance finished at $176 billion, up 73% from last year and slightly above 2018’s, registering the third lowest since the Global Financial Crisis (GFC). …The percentage of BB new issuance climbed to 50% in 2023 from 42% in 2022 while the percentage of new CCC issuance declined to a mere 3%. The average rating of 2023 new issuance is higher than the average rating of the overall FTSE Index, in large part because of the decline in CCC issuance and the recent exits of rising stars.  2023 secured issuance reached a decade’s high 57%. 7

Bank Loans

  • JPM Strategy on bank loan fundamentals and interest coverage ratios: “Coverage for the public cohort is more than twice that for private companies (4.37x vs 2.08%).” 8
  • The Credit Suisse Leveraged Loan Index gained 13.32% in 2023, the highest annual reading since the Global Financial Crisis (GFC) and second strongest record ever. 9
  • As a result of increased refinancing and amend and extend activity, borrowers reduced 2024 maturities to just $9 billion by Dec. 31, 2023, down from $74.9 billion at the start of the year. 10
  • LCD on 2024 loan outlook: “High base rates will keep returns for the bank-loan asset class elevated. New issuance, including mergers and acquisitions will improve, but will remain below historical averages.” 11

Definitions

  • The amend and extend clause is used in a credit agreement to give the borrower the right to request that the maturity date of all or a portion of its facility be amended and extended, along with amendments to key terms.
  • Bank loans (also known as floating-rate loans or leveraged loans) invest in bonds and other fixed-income securities that have variable, as opposed to fixed, interest rates.
  • A basis point is one hundredth of a percent, so 100 basis points is equivalent to 1%.
  • The Bloomberg US Corporate High-Yield Index measures the USD-denominated, high-yield, fixed-rate corporate bond market.
  • Bond ratings are grades given to bonds that indicate their credit quality as determined by private independent rating services such as Standard & Poor's, Moody's and Fitch. These firms evaluate a bond issuer's financial strength, or its ability to pay a bond's principal and interest in a timely fashion. Ratings are expressed as letters ranging from “AAA,” which is the highest grade, to “D,” which is the lowest grade. Investment grade refers to a bond considered investment grade if its credit rating is BBB- or higher.
  • The Credit Suisse Leveraged Loan Index is designed to mirror the investable universe of the U.S. senior secure-credit (leveraged-loan) market.
  • An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund.
  • The Federal Reserve balance sheet is a listing of the Federal Reserve's assets and liabilities.
  • The Financial Times Stock Exchange (FTSE), now known as FTSE Russell Group, is a British financial organization that specializes in providing index offerings for the global financial markets.
  • The FX, or forex, is the global marketplace for the exchange of currencies. As such, it determines the value of one currency against another in the real world.
  • The Global Financial Crisis (GFC) refers to the period of extreme stress in global financial markets and banking systems between mid-2007 and early 2009.
  • Hedging against investment risk means strategically using financial instruments or market strategies to offset the risk of any adverse price movements.
  • The interest coverage ratio indicates the number of times that a company's operating profit will cover the interest it must pay on all debts for a given period.
  • An issue or issuance is a process of offering securities in order to raise funds from investors. Companies may issue bonds or stocks to investors as a method of financing the business.
  • The J.P. Morgan US Liquid Index (JULI) measures the performance of the investment grade US dollar denominated corporate bond market,
  • A primary market is a source of new securities. Often on an exchange, it's where companies, governments, and other groups go to obtain financing through debt-based or equity-based securities.
  • Rising star refers to a bond that is rated as a "junk bond" but could become investment grade because of improvements in the issuing company's credit quality.
  • Spread is the measurement of the spread of a fixed-income security rate and the risk-free rate of return, represented by treasury bonds. Spread income refers to the additional income from this difference.
  • Yield is the income returned on an investment, such as the interest received from holding a security.

1  Goldman Sachs Economic Trends, Dec. 30, 2023
2 JPM Daily Credit Strategy & CDS/COX AM Update, Jan. 2, 2024
3 Credit Market Strategist BofA Global Research “Situation Room,” December 2023.
4 Morgan Stanley trade desk, Dec. 11, 2023.
5 Bloomberg, Jan. 2, 2024
6 Citi Strategy Team, Jan. 4, 2024.
7 JPM Daily Credit Strategy & CDS/COX AM Update, Jan. 2, 2024
8 Aristotle Pacific Capital analysis, Jan. 3, 2024
9 Aristotle Pacific Capital analysis, Jan. 3, 2024
10 Leveraged Commentary & Data (LCD) Quarterly Review, Jan. 2, 2024.
11 Leveraged Commentary & Data (LCD) Quarterly Review, Jan. 2, 2024.

Any performance data quoted represent past performance, which does not guarantee future results. Index performance is not indicative of any fund performance. Indexes are unmanaged, and it is not possible to invest directly in an index. For current standardized performance of the funds, please visit www.artistotlefunds.com.The views expressed are as of the publication date and are presented for informational purposes only. These views should not be considered as investment advice, an endorsement of any security, mutual fund, sector or index, or to predict performance of any investment or market. Any forward-looking statements are not guaranteed. All material is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. The opinions expressed herein are subject to change without notice as market and other conditions warrant.

Investors should consider a fund's investment goal, risks, charges, and expenses carefully before investing. The prospectuses contain this and other information about the funds. The
prospectuses and/or summary prospectuses should be read carefully before investing.

Investing involves risk. Principal loss is possible.

Foreside Financial Services, LLC, distributor.

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