Corporate Credit Highlights

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

Monthly Return
8/31/21
Year-to-date Return
8/31/21
OAS*
8/31/21
12/31/20
12/31/19
U.S. Credit
-0.24%
-0.23%
82
92
90
Single A Bonds
-0.29
%
-0.88
%
69
74
70
BBB Bonds
-0.21
%
0.37
%
108
124
125
1-3 Year Credit
0.03
%
0.39
%
28
30
36
7-10 Year Credit
-0.39
%
-0.56
%
87
96
98
Long Credit
-0.37
%
-0.70
%
124
141
139
Monthly Return
8/31/21
Year-to-date Return
8/31/21
OAS*
8/31/21
12/31/20
12/31/19
Bank Loans
0.49%
3.48%
447
486
461
B Loans
0.45
%
3.58
%
449
469
470
BB Loans
0.38
%
1.78
%
309
305
262
Loans priced over $90
0.46
%
3.38
%
424
422
368
Loans priced up to and Including $90
1.31
%
15.60
%
1307
1258
1270
Issues over $1 billion
0.51
%
3.19
%
401
414
379
Issues $201 million to $300 million
0.52
%
7.46
%
651
755
685
Monthly Return
8/31/21
Year-to-date Return
8/31/21
OAS*
8/31/21
12/31/20
12/31/19
High Yield
0.51%
4.55%
288
360
336
BB Bonds
0.56
%
4.05
%
203
264
182
CCC Bonds
0.49
%
7.44
%
520
658
869
Intermediate High-Yield Bonds
0.49
%
4.29
%
290
363
333
Long High-Yield Bonds
0.88
%
8.04
%
260
329
397
Very Liquid High-Yield Bonds
0.60
%
4.06
%
323
340
319

Source: Bloomberg Barclays and Morningstar as of 8/31/21. 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 Back Loans. Option adjusted spread (OAS) is the measurement of the spread of a fixed-income security rate and the risk-free rate of return.

Investment Grade

  • The Federal Reserve has officially closed its Secondary Market Corporate Credit Facility (SMCCF). On June 7, 2021, the SMCCF began winding down the portfolio and, as of Aug. 31, 2021, all its holdings of corporate bonds and ETFs had either matured or been sold.1
  • J.P. Morgan on new issue coupons vs. maturities: “YTD, the average coupon of bonds issued is 1.49% below the average coupon of maturing bonds. Companies have not had a repricing benefit this large since 2013.”2
  • Goldman Sachs noted that the amount of global debt with yields now in negative territory has spiked to $16.5 trillion, which is the highest level in six months.3

Bank Loans

  • J.P. Morgan noted that there was only one default in August impacting $565 million of loans, which follows one default impacting $290 million of loans in July. Notably, this year’s default volume ($9.3 billion) is on pace to be the lightest in a calendar year since $4.5 billion defaulted in fiscal year 2007.4
  • Credit Suisse on loan defaults: “U.S. leveraged-loan markets have seen a remarkable transition from default tidal wave to drought over the last 18 months. This drought has led the loan-issuer default rate to plunge to 1.1% as of this month, with levels approaching 12-year lows. The drop in the default rate has been accompanied by a rise in recovery rates, with the last 12 months 1L average now sitting at 64%, back to pre-pandemic highs.”5
  • Year-to-date collateralized loan obligation (CLO) sales stand at about $110 billion, according to data compiled by Bloomberg. Strategists at Bank of America project $140 billion of CLO issuance this year; the annual high mark of $130.4 billion was set in 2018.6

High Yield Corporates

  • According to J.P. Morgan, the combined distressed universe of high-yield bonds/loans totaled $32 billion in August 2021, compared to $549 billion in March 2020 and $142 billion in February 2020.7
  • Credit Suisse on high-yield fund performance: “A majority of funds are currently lagging their benchmark, with median total returns of 3.4%. This underperformance is likely being driven by investor underweights in higher quality BB bonds, which saw strong performance in recent months. … The underperformance of high-yield funds could lead them to position more aggressively into yearend to chase their benchmark, while investment-grade funds position defensively.”8
1
Source: FRED.
2
Beinstein, Eric et al. JPM Daily Credit Strategy & CDS/CDX am update.  J.P. Morgan, August 3, 2021.
3
Berry, Adam et al. Goldman Sachs Sales Coverage Commentary, Goldman Sachs, August 5, 2021.
4
Jantzen, Nelson et al. JPM High-Yield Leveraged Loan Morning Intelligence. J.P. Morgan, September 1, 2021.
5
Koch, Fer et al. CS Credit Strategy Daily Comment. Credit Suisse. September 1, 2021.
6
Mikkelsen, Hans et al. Credit Market Strategist. BofA Global Research, August 2021.
7
Jantzen, Nelson et al. JPM High-Yield Leveraged Loan Morning Intelligence. J.P. Morgan, August 24, 2021.
8
Koch, Fer et al. CS Credit Strategy Daily Comment. Credit Suisse. August 24, 2021.

Definitions

One basis point is equal to 0.01%.
The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market.
The Bloomberg Barclays 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 Barclays 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.

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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