Laying Low in a Storm of Equity Volatility and Rising Rates

By Adam Scarier via

Investors have found themselves stuck between a rock and a hard place this year. On one hand, there have been bouts of equity volatility caused by growth and geopolitical concerns. On the other hand, rising rates give pause to investors looking to rotate into fixed income.

As of October 29, the S&P 500 is up a modest 0.32% year to date, after a hard fall from its September record high. After three rate hikes, the 10-year Treasury hit 3.23% in early October, causing U.S. core bonds, as represented by the Bloomberg Barclays US Aggregate Bond Index, to decline 1.99% year to date.

However, if you leave no stone unturned, you just might just find some gold after all. And by gold, I mean junk. And by junk, I mean non-investment grade bonds and floating rate loans. Through October 29, floating rate loans have made a steady climb to a 4.14% total return this year while short duration high yield has returned a relatively respectable 2.42% as shown in Figure 1.

Figure 1: Floating Rate Loans and Short Duration High Yield outperformed other major asset classes year to date

Floating Rate Loans