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The Signal – June 2019

The Signal is a monthly rundown of what moves took place in the credit market and our latest educational and thought leadership content. Sign-up for The Signal here.

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Following a gray May, global capital markets bounced back in June as dovish rhetoric from the Federal Reserve (the “Fed”) and the European Central Bank (the “ECB”) alongside a reprieve in global trade negotiations sparked a resurgence in investor enthusiasm across asset classes. The S&P 500 led the rally, returning 7.05% in June and recouping losses in May, bringing QTD returns to 4.30%. Bolstered by imminent expectations of a rate cut, high yield bonds moved in tandem with equities to return 2.45% (ICE BoAML High Yield Master II Index) in the U.S. (2.57% QTD) and 2.35% (ICE BofAML European Currency High Yield Master II Index) in Europe (2.36% QTD) as spreads swiftly tightened on the heels of renewed inflows to the asset class that absorbed healthy new issuance in June. Conversely, while returns were positive for the month, leveraged loans lagged other below investment grade asset classes returning 0.22% and 0.13% (1.58% and 1.07% QTD) (Credit Suisse Leveraged Loan Index) in the U.S. and Europe , respectively. Leveraged loan returns were driven by higher-quality assets as investors moved cautiously in a market that has experienced nine consecutive monthly outflows, though loans overall have still generated strong returns in 2019 despite recent softness, with year-to-date (“YTD”) performance of 5.42% in the U.S. and 3.11% in Europe, respectively. Similarly, investment grade bonds (e.g. the Barclays U.S. Aggregate Bond Index) have demonstrated strength for the year thus far and were further supported by record one-month ETF inflows of $9.8Bn and total fund inflows of $20.4Bn in June against light supply that resulted in a monthly return of 1.26% (3.08% QTD).

Chart of the Month

Private middle-market companies have experienced revenue growth in excess of public indices and overall U.S. GDP.

Source: Bloomberg and Golub Capital Internal Data
Note: The U.S. Middle market is represented by the Golub Capital Altman Index (GCAI), which is based on aggregated data from companies in the loan portfolio of Golub Capital.

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