March 2022

Corporate Credit Highlights

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

Monthly Return
3/31/22
Year-to-Date Return
3/31/22
OAS*
3/31/22
12/31/21
12/31/20
12/31/19
U.S. Credit
-2.51%
-7.42%
108
87
92
90
Single A Bonds
-2.45
%
-7.29
%
94
74
74
70
BBB Bonds
-2.47
%
-7.88
%
142
115
124
125
1-3 Year Credit
-1.22
%
-2.46
%
49
35
30
36
7-10 Year Credit
-3.12
%
-7.45
%
119
93
96
98
Long Credit
-2.82
%
-11.23
%
155
130
141
139
Monthly Return
3/31/22
Year-to-Date Return
3/31/22
OAS*
3/31/22
12/31/21
12/31/20
12/31/19
Bank Loans
0.04%
-0.10%
449
439
486
461
B Loans
0.02
%
-0.01
%
452
444
469
470
BB Loans
0.14
%
-0.08
%
323
307
305
262
Loans priced over $90
0.08
%
0.04
%
424
417
422
368
Loans priced up to and Including $90
-1.44
%
-5.25
%
1472
1380
1258
1270
Issues over $1 billion
0.13
%
-0.16
%
409
395
414
379
Issues $201 million to $300 million
-0.07
%
0.18
%
629
639
755
685
Monthly Return
3/31/22
Year-to-Date Return
3/31/22
OAS*
3/31/22
12/31/21
12/31/20
12/31/19
High Yield
-1.15%
-4.84%
325
283
360
336
BB Bonds
-1.54
%
-5.94
%
232
194
264
182
CCC Bonds
-1.04
%
-3.88
%
625
549
658
869
Intermediate High-Yield Bonds
-1.08
%
-4.42
%
324
285
363
333
Long High-Yield Bonds
-2.22
%
-10.64
%
337
252
329
397
Very Liquid High-Yield Bonds
-1.22
%
-5.03
%
355
309
340
319

Source: Bloomberg, Credit Suisse and Morningstar® as of 3/31/22. U.S. Credit represented by the Bloomberg Barclays U.S. Credit Index and index components. Bank Loans are represented by the Credit Suisse Leverage Loan Index ad index components. High Yield represented by the Bloomberg Barclays U.S. Corporate High Yield Index and index components.
*3-year discount margin shown for Bank Loans. Option adjusted spread (OAS) is the measurement of the spread of a fixed-income security rate and the risk-free rate of return.
Ratings are grades given to bonds and loans 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 and/or loan issuer's financial strength, or its ability to pay a bond's/loan'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.

comments

Investment Grade

  1. Wells Fargo on investment-grade primary activity in March: "At $201.4 billion of volume, March 2022 has officially surpassed March 2021 ($199.4 billion) as the fourth largest month on record. Excluding those COVID-driven mega months, March 2022 would be the largest month on record of the investment-grade market in terms of volume.1

Bank Loans

  • Stifel on loan-default rates: “The default rate of the S&P/LSTA Leveraged Loan Index remains at a 10-year low of 0.19%. By issuer count, the default rate at 0.27% is barely above the 0.26% low set in December 2007. By way of volume, this equates to just $2.2 billion on a rolling 12-month basis, compared to $49 billion at the height of the pandemic-driven default wave of 2020."2
  • Three-month LIBOR breached 1% for the first time in almost two years, following the market selloff across the front end. The benchmark rate has risen by about 50 basis points in March with traders betting on a more aggressive path by the Fed.3
  • J.P. Morgan on SOFR issuance replacing LIBOR issuance: “Year-to-date, 153 new loan deals have priced for $116.3 billion, of which 130 totaling $111 billion are SOFR-linked with 82 of these containing CSAs. As of March 25, 7.46% of the J.P. Morgan first-lien loan index was SOFR-linked.”4

High Yield Corporates

  • Demand technicals were weaker in first quarter as high-yield retail funds saw the largest outflow in five years, far outpacing coupon income. However, the record pace of rising stars has more than made up for that lost demand. Despite outflows, the supply/demand technicals have been supportive for high-yield cash through the volatility we have seen to start the year, contributing to the outperformance of high-yield spreads compared to investment-grade.5
1
Source: Wells Fargo, as of March 29, 2022.
2
Lorio, Brian. Levered Loan Morning Update/Axis. Stifel. April 4, 2022.
3
Harris, Alexandra. Libor Breaches 1% for the First Time Since Onset of Pandemic. Bloomberg. March 29, 2022.
4
US Corporate Credit Issuance Monthly. J.P. Morgan, March 2022.
5
Koch, Fer et al. CS Credit Strategy Daily Comment. Credit Suisse. April 1, 2022.

Definitions

The Bloomberg US 1-3 Year Credit Index measures the performance of investment grade, US dollar-denominated, fixed-rate, taxable corporate and government-related debt with 1 to below 3 years to maturity.
The Bloomberg US 7-10 Year Credit Index measures the performance of investment grade, US dollar-denominated, fixed-rate, taxable corporate and government-related debt with 7 to below 10 years to maturity.
The Bloomberg US Long Credit Index measures the performance of the investment grade, US dollar-denominated, fixed-rate, taxable corporate and government related bond markets that have remaining maturity of greater than or equal to 10 years.
One basis point is equal to 0.01%.
The Bloomberg US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market.
The Bloomberg US Corporate Investment Grade Index Index is the Corporate component of the U.S. Credit index and measures the investment grade, fixed-rate, taxable corporate bond market.
The Bloomberg US Credit Index measures the investment grade, US dollar-denominated, fixed-rate, taxable corporate and government related bond markets.
The Credit Suisse Leveraged Loan Index is an index of U.S. dollar-denominated leveraged loan market securities.
Duration is often used to measure a bond’s or fund’s sensitivity to interest rates. The longer a fund’s duration, the more sensitive it is to interest-rate risk. The shorter a fund’s duration, the less sensitive it is to interest-rate risk.
Issue refers to a debt issue that is a financial obligation that allows the issuer to raise funds by promising to repay the lender at a certain point in the future and in accordance with the terms of the contract.
A rising star is a non-investment grade security with the potential to be upgraded.

Past performance does not guarantee future results. Index performance is not indicative of fund performance. Standardized performance for the fund can be obtained by visiting www.PacificFunds.com.

All investing involves risks including the possible loss of the principal amount invested. Debt securities with longer durations or fixed interest rates tend to be more sensitive to changes in interest rates, making them generally more volatile than debt securities with shorter durations or floating or adjustable interest rates. The Fund is subject to liquidity risk (the risk that an investment may be difficult to purchase and sell within a reasonable amount of time at approximately the price the Fund has valued the investment) and credit risk (the risk an issuer may be unable or unwilling to meet its financial obligations, risking default). Floating-rate loans (usually rated below investment grade) and high-yield/high-risk bonds (“junk bonds”) have greater risk of default than higher-rated securities/ higher-quality bonds that may have a lower yield. Interest rates and bond prices have an inverse relationship. The Fund is also subject to foreign-markets risk.

Pacific Life Insurance Company is the administrator for Pacific Funds. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.

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 PacificFunds.com. The prospectus and/or summary prospectus should be read carefully before investing.

Pacific Funds is a registered service mark of Pacific Life Insurance Company ("Pacific Life"). All third-party trademarks referenced by Pacific Life belong to their respective owners. References of third-party trademarks do not indicate or signify any relationship, sponsorship or endorsement between Pacific Life and the owners of referenced trademarks.

Pacific Funds are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company (Newport Beach, CA), and are available through licensed third parties. Pacific Funds refers to Pacific Funds Series Trust.

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