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Update

Barrow Hanley Credit Partners August 2025 Monthly Update

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In this post:

9.16.2025
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Executive Summary

  • Financial assets generatedstrong returns during Augustin anticipation of Fed rate cuts
  • Assets across the board are richly priced,investors may want to focus on returnof capital as opposed to return on capital
  • High Yield risk characteristics have changed materially and offer investorsyield with less risk

Market Recap

August was a positive month for almost every asset class as the macro picture continues to drive market pricing. Powell’s comments at Jackson Hole implied the Fed was open to cutting short-term rates, which really got asset prices moving. Powell mentioned that risks to inflation are likely higher, but there is also risk of lower employment. On the last business day of the month, the appeals court ruled that the tariffs issued under the International Emergency Economic Powers Act (IEEPA) were illegal. This introduces uncertainty into the markets to start September. This uncertainty is likely to revolve around timing of potential cash collections or rebates as opposed to whether tariffs will be in place in the future. The Trump administration has other legal options to impose tariffs that would likely be used if this current ruling is upheld.

Macro Strategy Partnership published a great 3-part series, “A Brief History of Bond Routs”, that highlighted the bond bear market of 1941 to 1981 and the bond bull market of 1981 to 2020. They highlighted that during the 1941-1981 bond bear market, debt-to-GDP levels started as high as they are today, around 100%, but ended at 20%. Meanwhile, rates rose dramatically during that time period. The opposite happened from 1981 to 2020 - debt-to-GDP levels rose dramatically while rates dropped. Macro Strategy suggests that supply-side (supply of treasury issuance) is first level thinking, and that matters, but ultimately economic factors drive rates more than technical factors. Essentially, we think government spending is inefficient and crowds out productive spending. If you shrink government spending, you effectively swap unproductive for productive endeavors and promote growth. In that environment, bonds rarely underperform. More government spending does not stimulate the economy outside of a crisis.

During the month, Bloomberg published a handful of articles highlighting how expensive equity markets are priced. In one article titled: An Alternative View of Buy and Hold Investing: Everything Risk by Edward Harrison, he highlighted very long-run historical returns.

In most cases if you held equities over a long period of time, you came out ok as long as you ignored the volatility in between. Over a running 10-year period in real terms, you lost money on a couple of occasions, -57% in 1982 and -54% in 2009. Over a 30-year period, the low was +3.6% real return. Looking at the rolling 30-year chart on the right is interesting, and if you believe in cycles, it’s hard not to think we may be closer to the top of the cycle than the bottom.

If you have heard any of our team members speak about how we are viewing markets recently, we continue to highlight that High Yield and Loans give investors reasonable returns with what is likely to be less cumulative risk than other asset classes. Even within fixed income markets, High Yield allocations in portfolios have brought down volatility metrics.

High Yield benefits from a higher quality mix of BBs, lower exposure to CCCs, higher secured mix, and the shortest tenor historically. These attributes reduce the volatility investors experience, as seen in the chart left.

One of the key attributes reducing volatility is the short tenor of HY, as seen in the duration measure, which is less than 3 years. One measure we look at is the yield per unit of duration. Loans are obviously left out of this analysis due to their floating base rate. HY currently sits at its 80th percentile of yield per unit of duration compared to IG at 50th percentile and the 10-yr UST at 68st percentile. While we agree that spreads are on the tighter side, we think there are compelling reasons why investors should still want to own HY in this environment to potentially lower the risk/volatility of an overall portfolio.

High Yield

High Yield generated a 1.22% return in August, with a majority of that return coming in the last few days of the month after Powell’s Jackson Hole speech. CCCs outperformed other ratings cohorts up 1.51%, while BBs were up 1.20%, and Single-Bs were up 1.15%. HY ended the month 29bps tighter at a 6.78% yield-to-worst. Spreads were 304bps, 2bps tighter than at the start of the month.

Loans

Loans were up 35bps in the month, lagging most other fixed income asset classes as duration benefited other asset classes. BB loans outperformed, up 0.48%, while Single-B Loans were up 0.39%. CCC Loans underperformed, losing -0.87%, a notable divergence from the rest of the market. Another point we stress in meetings is that the vast majority of Loans (90%+) are very compelling to own in portfolios, but we have notably avoided lower quality Loans in our portfolios. We own roughly one-third of the index level allocation to CCC-rated loans. Loan yield to 3-years ended the month at 7.85% and 3-year discount margins for loans ended 6bps tighter to 456bps.

CLOs

CLO new issuance reached $12.1bn in August with 26 deals printing, along with another $13.1bn of refinancings and $18.6bn of resets. Activity was near the highs of the year and the trend continued for cheaper financing across the capital structure of a CLO driving activity to reprice and extend deals. The average Weighted Average Cost of Capital for deals in the market has fallen by nearly 25bps from 2024 levels and over 75bps from 2022.

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ABOUT BARROW HANLEY GLOBAL INVESTORS

Barrow Hanley is a diversified investment management firm offering value-focused investment strategies spanning global equities and fixed income. Recognized as one of the few remaining firms dedicated exclusively to value investing, Barrow Hanley enjoys a boutique culture with a singular focus to assist clients in meeting their investment objectives. Today, Barrow  Hanley has approximately 100 employees, over half of which are investment professionals managing assets for our valued clients. Barrow Hanley stewards the capital of corporate, public, multi-employer pension plans, mutual funds, endowments and foundations, and sovereign wealth funds across North America, Europe, Asia, Australia and Africa. For further information, please visit www.barrowhanley.com.

General Disclosures:‍

All opinions included in this report constitute Barrow Hanley’s (BH) judgment as of the time of issuance of this report and are subject to change without notice. This report was prepared by Barrow Hanley with information it believes to be reliable. This report is for informational purposes only and is not intended to be an offer, solicitation, or recommendation with respect to the purchase or sale of any security, nor a recommendation of services supplied by any money management organization. Past perfor- mance is not indicative of future results. Barrow Hanley is a value-oriented investment manager, providing services to institutional clients.

Barrow Hanley Credit Partners® is a legally assumed name for the Alternative Credit investment team and investment strategies of Barrow Hanley Global Investors®, including Bank Loan Fixed Income, Collateralized Loan Obligations, and High Yield Fixed Income.

These investment summaries are provided for informational purposes only and should not be viewed as representative of all investments by the firm. This report includes certain “forward-looking statements” including, but not limited to, BH’s plans, projections, objectives, expectations, and intentions and other statements contained herein that are not historical facts as well as statements identified by words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “projects”, or words of similar meaning. Such statements and opinions contained are based on BH’s current beliefs or expectations and are subject to significant uncertainties and changes in circumstances, many beyond BH’s control. Actual results may differ materially from these expectations due to changes in global, political, economic, business, competitive, market, and regulatory factors. Additional information regarding the strategy is available upon request.‍

Index Disclosures:‍

Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg’s licensors approves or endorses this materi- al, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Credit Suisse Index data is permissible for use by Barrow Hanley for client reporting and marketing purposes. This data is not permitted to be re-distributed.

Merrill Lynch index data referenced herein is the property of ICE Data Indices, LLC, its affiliates (“ICE Data”) and/or its Third Party Suppliers and has been licensed for use by Barrow Hanley Global Investors. ICE Data and its Third Party Suppliers accept no liability in connection with its use.

The S&P Indexes are a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed for use by Barrow, Hanley, Mewhinney & Strauss. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Barrow, Hanley, Mewhinney & Strauss. It is not possible to invest directly in an index. Barrow, Hanley, Mewhinney & Strauss products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices does not make any representation or warranty, express or implied, to the owners of the Barrow, Hanley, Mewhinney & Strauss products or any member of the public regarding the advisability of investing in securities generally or in Barrow, Hanley, Mewhinney & Strauss products particularly or the ability of the S&P Indexes to track general market performance. Past performance of an index is not an indication or guarantee of future results. S&P Dow Jones Indices’ only relationship to Barrow, Hanley, Mewhinney & Strauss with respect to the S&P Indexes is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P Indexes is determined, composed and calculated by S&P Dow Jones Indices without regard to Barrow, Hanley, Mewhinney & Strauss or Barrow, Hanley, Mewhinney & Strauss products. S&P Dow Jones Indices have no obligation to take the needs of Barrow, Hanley, Mewhinney & Strauss or the owners of Barrow, Hanley, Mewhinney & Strauss products into consideration in determining, composing or calculating the S&P Indexes. S&P Dow Jones Indices are not responsible for and have not participated in the determination of the prices, and amount of Barrow, Hanley, Mewhinney & Strauss products or the timing of the issuance or sale of Barrow, Hanley, Mewhinney & Strauss products or in the determination or calculation of the equation by which Barrow, Hanley, Mewhinney & Strauss products is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading of Barrow, Hanley, Mewhinney & Strauss products. There is no assurance that investment products based on the S&P Indexes will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities on portfolios and the tax consequences of making any particular investment decision. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.‍

Index Disclosures (continued):‍

NEITHER S&P DOW JONES INDICES NOR THIRD PARTY LICENSOR GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P INDEXES OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY BARROW, HANLEY, MEWHINNEY & STRAUSS, OWNERS OF THE BARROW, HANLEY, MEWHINNEY & STRAUSS PRODUCTS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDEXES OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND BARROW, HANLEY, MEWHINNEY & STRAUSS , OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.

Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a presentation of Barrow Hanley. Russell Investment Group is not responsible for the formatting or configuration of this material or for any inaccuracy in Barrow Hanley’s presentation thereof.

Please contact us for more information.

214.665.1900
contactus@barrowhanley.com

‍
Barrow Hanley Global Investors
2200 Ross Avenue
31st Floor Dallas, TX 75201
www.barrowhanley.com

9.16.2025
Follow us:

Market Recap

August was a positive month for almost every asset class as the macro picture continues to drive market pricing. Powell’s comments at Jackson Hole implied the Fed was open to cutting short-term rates, which really got asset prices moving. Powell mentioned that risks to inflation are likely higher, but there is also risk of lower employment. On the last business day of the month, the appeals court ruled that the tariffs issued under the International Emergency Economic Powers Act (IEEPA) were illegal. This introduces uncertainty into the markets to start September. This uncertainty is likely to revolve around timing of potential cash collections or rebates as opposed to whether tariffs will be in place in the future. The Trump administration has other legal options to impose tariffs that would likely be used if this current ruling is upheld.

Macro Strategy Partnership published a great 3-part series, “A Brief History of Bond Routs”, that highlighted the bond bear market of 1941 to 1981 and the bond bull market of 1981 to 2020. They highlighted that during the 1941-1981 bond bear market, debt-to-GDP levels started as high as they are today, around 100%, but ended at 20%. Meanwhile, rates rose dramatically during that time period. The opposite happened from 1981 to 2020 - debt-to-GDP levels rose dramatically while rates dropped. Macro Strategy suggests that supply-side (supply of treasury issuance) is first level thinking, and that matters, but ultimately economic factors drive rates more than technical factors. Essentially, we think government spending is inefficient and crowds out productive spending. If you shrink government spending, you effectively swap unproductive for productive endeavors and promote growth. In that environment, bonds rarely underperform. More government spending does not stimulate the economy outside of a crisis.

During the month, Bloomberg published a handful of articles highlighting how expensive equity markets are priced. In one article titled: An Alternative View of Buy and Hold Investing: Everything Risk by Edward Harrison, he highlighted very long-run historical returns.

In most cases if you held equities over a long period of time, you came out ok as long as you ignored the volatility in between. Over a running 10-year period in real terms, you lost money on a couple of occasions, -57% in 1982 and -54% in 2009. Over a 30-year period, the low was +3.6% real return. Looking at the rolling 30-year chart on the right is interesting, and if you believe in cycles, it’s hard not to think we may be closer to the top of the cycle than the bottom.

If you have heard any of our team members speak about how we are viewing markets recently, we continue to highlight that High Yield and Loans give investors reasonable returns with what is likely to be less cumulative risk than other asset classes. Even within fixed income markets, High Yield allocations in portfolios have brought down volatility metrics.

High Yield benefits from a higher quality mix of BBs, lower exposure to CCCs, higher secured mix, and the shortest tenor historically. These attributes reduce the volatility investors experience, as seen in the chart left.

One of the key attributes reducing volatility is the short tenor of HY, as seen in the duration measure, which is less than 3 years. One measure we look at is the yield per unit of duration. Loans are obviously left out of this analysis due to their floating base rate. HY currently sits at its 80th percentile of yield per unit of duration compared to IG at 50th percentile and the 10-yr UST at 68st percentile. While we agree that spreads are on the tighter side, we think there are compelling reasons why investors should still want to own HY in this environment to potentially lower the risk/volatility of an overall portfolio.

High Yield

High Yield generated a 1.22% return in August, with a majority of that return coming in the last few days of the month after Powell’s Jackson Hole speech. CCCs outperformed other ratings cohorts up 1.51%, while BBs were up 1.20%, and Single-Bs were up 1.15%. HY ended the month 29bps tighter at a 6.78% yield-to-worst. Spreads were 304bps, 2bps tighter than at the start of the month.

Loans

Loans were up 35bps in the month, lagging most other fixed income asset classes as duration benefited other asset classes. BB loans outperformed, up 0.48%, while Single-B Loans were up 0.39%. CCC Loans underperformed, losing -0.87%, a notable divergence from the rest of the market. Another point we stress in meetings is that the vast majority of Loans (90%+) are very compelling to own in portfolios, but we have notably avoided lower quality Loans in our portfolios. We own roughly one-third of the index level allocation to CCC-rated loans. Loan yield to 3-years ended the month at 7.85% and 3-year discount margins for loans ended 6bps tighter to 456bps.

CLOs

CLO new issuance reached $12.1bn in August with 26 deals printing, along with another $13.1bn of refinancings and $18.6bn of resets. Activity was near the highs of the year and the trend continued for cheaper financing across the capital structure of a CLO driving activity to reprice and extend deals. The average Weighted Average Cost of Capital for deals in the market has fallen by nearly 25bps from 2024 levels and over 75bps from 2022.

A longstanding history of competitive returns, a collegial environment, and a bespoke approach to client service yields a principled, proven partner.