AUGUST 2022

Corporate Credit Highlights

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

Monthly Return
7/31/22
Year-to-Date Return
7/31/22
OAS
7/31/22
12/31/21
12/31/20
12/31/19
U.S. Credit
3.04%
-11.19%
134
87
92
90
Single A Bonds
3.02
%
-10.72
%
116
74
74
70
BBB Bonds
3.34
%
-12.37
%
180
115
124
125
1-3 Year Credit
0.79
%
-2.59
%
67
35
30
36
7-10 Year Credit
3.76
%
-10.93
%
163
93
96
98
Long Credit
4.65
%
-18.80
%
175
130
141
139
Monthly Return
7/31/22
Year-to-Date Return
7/31/22
OAS
7/31/22
12/31/21
12/31/20
12/31/19
Bank Loans*
1.87%
-2.66%
602
439
486
461
B Loans
2.06
%
-2.68
%
628
444
469
470
BB Loans
2.20
%
-0.99
%
406
307
305
262
Loans priced over $90
2.08
%
-1.99
%
513
417
422
368
Loans priced up to and including $90
0.68
%
-16.65
%
1098
1380
1258
1270
Issues over $1 billion
-2.52
%
-2.71
%
551
395
414
379
Issues $201 million to $300 million
0.00
%
-2.32
%
794
639
755
685
Monthly Return
7/31/22
Year-to-Date Return
7/31/22
OAS
7/31/22
12/31/21
12/31/20
12/31/19
High Yield
5.90%
-9.12%
469
283
360
336
BB Bonds
6.10
%
-8.61
%
308
194
264
182
CCC Bonds
4.95
%
-12.22
%
959
549
658
869
Intermediate High-Yield Bonds
5.87
%
-8.51
%
471
285
363
333
Long High-Yield Bonds
6.75
%
-19.10
%
430
252
329
397
Very Liquid High-Yield Bonds
6.91
%
-9.24
%
508
309
340
319

Source: Bloomberg, Credit Suisse and Morningstar® as of 7/31/22.
U.S. credit represented by the Bloomberg US Credit index and index components. Bank loans are represented by the Credit Suisse Leveraged Loan index and index components. High yield is represented by the Bloomberg US Corporate High Yield and index components.
*3-year discount margin show for bank loans.

comments

Investment Grade

  1. BAML strategy on August primary: "We look for IG new issue supply in a $60-$70bn range in August, down from $84bn priced so far in July. This is because all of the upside surprise to issuance this year was from financials, and the share of financial issuance is seasonally low in August. Relative to the same period last year, financial supply is up 8.5%, while non-financial supply is down 29%. The pattern was similar in July, with financial supply up 9% from July 2021 and non-financial supply down 32%. Higher borrowing costs, elevated cash levels and a more conservative balance sheet usage given growth concerns mean more subdued non-financial supply, which tends to dominate in August. ...Assuming the more typical $25bn of calls and tenders in August results of net supply of $9bn, down from $18bn so far in July and $17bn in June."1
  2. Credit Suisse on rising stars: “After [July’s] TMUS upgrade, 2022 has seen the largest volume of rising stars in the post-GFC era, with roughly $70bn of rising stars versus just $11bn of fallen angels.”2
  3. BAML on flows for IG asset class: “Outflows from HG bond funds and ETFs started in December and are finally slowing in July on more stable interest rates. How big was this outflow cycle? We estimate that from December to the first half of July outflows totaled $142bn."3

Bank Loans

  • JPM on loan prices: “Leveraged loans prices are currently [July 28] $93.76, up $1.75 from the YTD low on 7/6 of$92.01, but down -$5.19 from 1/20’s YTD high of $98.95. Further, the $98-100 and >$100 buckets for loans are now at 10.7% and 0.3% of the market, compared with 6.0% and 0.1% on July 6 and 46.6% and 45.5% on January 20, while the below $98 bucket encompasses 89% of the loan index versus 94% in early July and only 8% in late January.”4
  • JPM default update: “Including distressed exchanges, the US high-yield bond and loan default rates increased 40bp and 12bp m/m to 1.09% and 1.12%, respectively. For context, the long-term average default rate for high-yield bonds and leveraged loans is 3.2% and 3.1%, respectively. And the issuer weighted high-yield and loan default rates are 0.86% and 0.67%, respectively, down 116bp and 17bp from 12 months prior.”5

High Yield Corporates

  • Lipper reported a massive inflow into HY on the week (July /25) of +$4.8bn. This is the largest weekly inflow for HY since June of 2020.”6
  • HY primary remains dormant with just $1.8bn pricing MTD and forward calendar bleak. Large issuance expected to price this summer has been pushed out until post Labor Day Holiday and thus more of the same slow pace expected next month as well.
1 Seliger, Yuri et al. Credit Market Strategist BofA Global research “Situation Room,” July 2022.
2 Koch, Fer et al. CS Credit Strategy Daily Comment. Credit Suisse. July 22, 2022.
3 Seliger, Yuri et al. Credit Market Strategist BofA Global research “Situation Room,” July 2022
4 Jantzen, Nelson, JPM Daily Credit Strategy & CDS/COX am update. J.P. Morgan, July 28, 2022.
5 Jantzen, Nelson, JPM Daily Credit Strategy & CDS/COX am update. J.P. Morgan, Aug. 2, 2022.
6Jantzen, Nelson, JPM Daily Credit Strategy & CDS/COX am update. J.P. Morgan, July 29, 2022.

Disclosures

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.

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 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.

Mailing address: P.O. Box 9768, Providence, RI 02940-9768 (800) 722-2333 • www.PacificFunds.com

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