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Barrow Hanley Credit Partners Monthly Market Update | Rates Hiked, Fixed Income Slides, Loans Remain Resilient

In this post:

10.26.2026
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Executive Summary

  • Higher rates pressured bonds and rate-sensitive equities despite resilient growth
  • HY’s worst month since 2022 was driven by high rates and record supply
  • Loans remained resilient as higher rates increased demand for the asset class

Market Recap

September was driven by rapid increases in interest rates. The Fed returned to hiking rates after a 3-year reprieve, raising the Fed Funds rate 25bps and markets went further, pricing two additional increases by the end of 2027. The 10-year Treasury yield rose 54bps to 5.29% and the 2-year rose 55bps to 4.89%, a near parallel shift that cost a 10-year Treasury bond owner -3.65% return in the month. Returns followed duration: the Bloomberg Aggregate declined -2.61%, investment grade corporates fell -2.63%, high yield dropped -2.49%, while floating rate loans gained +0.26%.

Three things kept yields rising: oil, growth, and the consumer. Oil moved back above $100 as U.S.-Iran talks stalled and attacks on Saudi Arabia increased the risk of longer-term supply disruptions. Growth stayed firm, with PMI business surveys showing the fastest activity since 2021, and second quarter GDP was revised up to 2.2%. The consumer proved stronger than reported, revisions lifted saving rates to mid-4% from 3% initially reported, and household cash is about 20% above 2019 levels after inflation. Equity indices held up better on the surface, but there was wide dispersion under the surface. The S&P 500 declined -0.35% and the Nasdaq rose +1.96%, carried by large technology companies. Meta gained almost 27% on its Muse AI assistant release, in the same month the heads of Anthropic and Open AI urged caution on the pace of AI and the market’s enthusiasm for it. The equal weight S&P fell -4.81% and small caps declined -5.25%.

We are in a capex driven cycle, which is different than the consumer driven economic cycles the U.S. has experienced for decades. This cycle is likely more durable and won't materially downshift in pace because rates are 100bps higher after many chips and other input goods have doubled and tripled in price. The spenders behind this cycle are not rate sensitive. Each data center requires dozens of categories of tradesmen, contractors, engineers, in addition to energy and utility firm investments. Defense spending and broader energy investment add to this investment cycle requiring labor where the unemployment and underemployment rates have been declining. Immigration policies have slowed labor force growth and pushed down the job growth breakeven rate, which is not consistent with a stable labor force. The cost of higher rates falls elsewhere, like housing velocity, the traditional channel for Fed policy. Housing activity continued to weaken as mortgage rates crossed 7% and the lowest quality leveraged issuers, CCCs, have continued to generate losses in aggregate. A mitigant we continue to highlight is that these companies and management teams have been tested by back-to-back stressed environments, beginning with COVID in 2020. Many of these issuers have issued floating rate debt and these issuers have very recently experienced SOFR rates of 5.39% versus high 4% expected in 2027. Meanwhile high interest and dividend payouts are the main cause for the positive savings rate revisions with a strong labor market keeping the consumer fundamentally sound.

High Yield

September was the worst month for High Yield since 2022, declining -2.49% with yields increasing 107bps to 8.30%. Spreads increased by 48bps, with rates contributing the remainder. Within ratings cohorts, BBs declined -2.45%, Single-Bs were down -2.34%, and CCCs lagged down -3.42%. High Yield still fared better than Treasuries and Investment Grade corporates, which has been a theme for HY versus higher-rated assets that we have been talking about in these letters. Improved quality, collateral security, and lower duration all reduce volatility relative to other fixed income assets. Year-to-date HY is still positive +0.04%, while 10-year treasury bonds are down -5.15%, the Bloomberg Agg is down -2.91%, IG corporates are down -2.79%, and agency mortgages are down -3.02%. BB yields ended the month at 7.16%, up 100bps. Single-B yields ended at 8.33%, up 104bps, while CCC yields were 16.75%, up 191bps. Spreads for BBs were 211bps, higher by 41bps, Single-B spreads were 333bps, up 45bps, while CCC spreads were 1,180, higher by 135bps.

Supply pressured spreads with net issuance of $36bn, the largest on record. Multiple large deals price at the end of the month including Paramount Skydance’s fourth largest HY deal ever at $12.3bn and Softbank’s $11.1bn issuance not far behind. Fund flows also added to the pressure with $4.7bn outflows in September. The Paramount syndication made waves as it closed on the last day of the month and the 10-year bond immediately traded down 5 points, then another few points the next day. The cause of this was because it was a very large deal, with the vast majority of market participants doing work on the name. When investors tell the syndicating banks how many bonds they would like, the market standard is to “pad” orders sometimes by multiples of what the investor really wants or can even hold, because investors get cut back or receive a fraction of the bonds than they indicate they want. The big move in rates came in the last few days of the month so there were investors who pulled orders at the last minute leaving the remaining investors to get “full fills” on inflated orders. Investors who received more bonds than they wanted quickly tried to sell them when they could, pressuring bond prices immediately. We did not participate in the Paramount bond offering.

When we look at HY’s yield widening during the month from the beginning up until the 23rd of the month, Yields had increased 60bps, of which over 80% was due to rates versus spreads, and the last 5 days of the month spread widening accounted for just shy of 80% of the remaining 47bps increase in yield.

Loans

Loans continued to be a calm spot in September, with a positive return of +0.26%. BB Loans were up +0.18%. Single-B loans were up +0.41%. CCCs continued to lag down -1.70%. Year-to-date CCCs are down -4.71%, while the broader index is up 3.42% and BBs and Single-Bs are up 3.86% and 3.92%, respectively. Loan spreads tell a different story than that of HY. Index-level spreads widened 5bps to 482bps. BB spreads were higher by 14bps while Single-B spreads tightened by 1bps, and CCC spreads were wider by 129bps. So far this feels more like bifurcation of the lower quality spectrum rather than broad stress. Loans benefited from flows, with +4.7bn of inflows, because as rates increased investors sought protection in floating-rate assets. CLO ETFs accounted for $3bn of that inflow. Yield to a 3-year takeout for loans increased to 9.62%, up 64bps in the month. Spreads were higher by 5bps, to 482bps. An increase in Fed Funds and rate expectations drove yields higher. Early September saw increased re-pricing activity while total net supply for loans was not that far behind HY at $32bn, the strongest issuance month in 3 years.

Returns as of September 30, 2026

BH Strategy Returns Month QTD 1 Year 3 Year 5 Year 10 Year 20 Year Since Inception
High Yield Composite Gross -2.26% -0.93% 3.39% 9.39% 5.12% 6.25% 6.64% 6.52%
High Yield Composite Net -2.29% -1.02% 2.93% 8.88% 4.63% 5.75% 6.13% 6.02%
Bank Loan Composite Gross -0.53% 0.85% 4.81% 8.18% 7.18% - - 6.40%
Bank Loan Composite Net -0.57% 0.74% 4.33% 7.66% 6.66% - - 5.88%
Asset Class Month QTD YTD Index
HY Return -2.49% -1.81% 0.04% ICE BAML HY Index
HY BB Return -2.45% -1.86% -0.05% ICE BAML BB HY Index
HY B Return -2.34% -1.30% 1.12% ICE BAML B HY Index
HY CCC Return -3.42% -3.57% -3.44% ICE BAML CCC HY Index
Leveraged Loan Return 0.26% 2.03% 3.42% S&P UBS Leveraged Loan Index
LL BB Return 0.18% 1.53% 3.86% S&P UBS Leveraged Loan BB Index
LL B Return 0.41% 2.43% 3.92% S&P UBS Leveraged Loan B Index
LL CCC Return -1.70% -1.72% -4.71% S&P UBS Leveraged Loan CCC Index
HYG -2.73% -2.00% -0.34% iShares iBoxx High Yield
BKLN -0.13% 1.95% 1.97% Invesco Senior Loan ETF
S&P 500 Return -0.35% 2.30% 12.75% S&P 500
Russell 2000 Return -5.25% -7.23% 13.71% Russell 2000 Index
10 Year Beg 4.75% 4.47% 4.17% 10 Year Treasury
10 Year End 5.29% 5.29% 5.29% 10 Year Treasury
10 Year Return -3.65% -5.17% -5.15% 10 Year Treasury
Beg Mo Beg QTD Beg Year End of Month
HY YTW 7.23% 7.15% 6.62% 8.30%
HY BB YTW 6.16% 6.07% 5.55% 7.16%
HY B YTW 7.29% 7.34% 6.78% 8.33%
HY CCC YTW 14.84% 13.95% 12.57% 16.75%
HY STW 279 bps 294 bps 296 bps 327 bps
HY BB STW 170 bps 186 bps 186 bps 211 bps
HY B STW 288 bps 315 bps 315 bps 333 bps
HY CCC STW 1045 bps 978 bps 892 bps 1180 bps
LL YT3Y 8.98% 8.93% 7.86% 9.62%
LL BB YT3Y 6.70% 6.59% 5.79% 7.41%
LL B YT3Y 8.54% 8.63% 7.42% 9.11%
LL CCC YT3Y 21.53% 21.04% 17.95% 23.48%
LL ST3Y 477 bps 500 bps 455 bps 482 bps
LL BB ST3Y 249 bps 266 bps 247 bps 263 bps
LL B ST3Y 433 bps 469 bps 410 bps 432 bps
LL CCC ST3Y 1726 bps 1708 bps 1471 bps 1855 bps
‍Source: Barrow Hanley. Returns represent an asset-weighted composite of all Bank Loan Fixed Income portfolios or High Yield Fixed Income portfolios. Index returns are shown before transaction costs, management fees, and other expenses. Performance is expressed in U.S. currency. Net-of-fee returns are calculated us-ing a model fee. The model fee is based on a $100 million portfolio using our standard fee schedule. Past performance is not indicative of future results. Inception Date for Bank Loans is June 1, 2018. Inception Date for High Yield is January 1, 2005.
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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 performance 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.

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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 material, 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.

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.

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www.barrowhanley.com

10.26.2026
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Market Recap

September was driven by rapid increases in interest rates. The Fed returned to hiking rates after a 3-year reprieve, raising the Fed Funds rate 25bps and markets went further, pricing two additional increases by the end of 2027. The 10-year Treasury yield rose 54bps to 5.29% and the 2-year rose 55bps to 4.89%, a near parallel shift that cost a 10-year Treasury bond owner -3.65% return in the month. Returns followed duration: the Bloomberg Aggregate declined -2.61%, investment grade corporates fell -2.63%, high yield dropped -2.49%, while floating rate loans gained +0.26%.

Three things kept yields rising: oil, growth, and the consumer. Oil moved back above $100 as U.S.-Iran talks stalled and attacks on Saudi Arabia increased the risk of longer-term supply disruptions. Growth stayed firm, with PMI business surveys showing the fastest activity since 2021, and second quarter GDP was revised up to 2.2%. The consumer proved stronger than reported, revisions lifted saving rates to mid-4% from 3% initially reported, and household cash is about 20% above 2019 levels after inflation. Equity indices held up better on the surface, but there was wide dispersion under the surface. The S&P 500 declined -0.35% and the Nasdaq rose +1.96%, carried by large technology companies. Meta gained almost 27% on its Muse AI assistant release, in the same month the heads of Anthropic and Open AI urged caution on the pace of AI and the market’s enthusiasm for it. The equal weight S&P fell -4.81% and small caps declined -5.25%.

We are in a capex driven cycle, which is different than the consumer driven economic cycles the U.S. has experienced for decades. This cycle is likely more durable and won't materially downshift in pace because rates are 100bps higher after many chips and other input goods have doubled and tripled in price. The spenders behind this cycle are not rate sensitive. Each data center requires dozens of categories of tradesmen, contractors, engineers, in addition to energy and utility firm investments. Defense spending and broader energy investment add to this investment cycle requiring labor where the unemployment and underemployment rates have been declining. Immigration policies have slowed labor force growth and pushed down the job growth breakeven rate, which is not consistent with a stable labor force. The cost of higher rates falls elsewhere, like housing velocity, the traditional channel for Fed policy. Housing activity continued to weaken as mortgage rates crossed 7% and the lowest quality leveraged issuers, CCCs, have continued to generate losses in aggregate. A mitigant we continue to highlight is that these companies and management teams have been tested by back-to-back stressed environments, beginning with COVID in 2020. Many of these issuers have issued floating rate debt and these issuers have very recently experienced SOFR rates of 5.39% versus high 4% expected in 2027. Meanwhile high interest and dividend payouts are the main cause for the positive savings rate revisions with a strong labor market keeping the consumer fundamentally sound.

High Yield

September was the worst month for High Yield since 2022, declining -2.49% with yields increasing 107bps to 8.30%. Spreads increased by 48bps, with rates contributing the remainder. Within ratings cohorts, BBs declined -2.45%, Single-Bs were down -2.34%, and CCCs lagged down -3.42%. High Yield still fared better than Treasuries and Investment Grade corporates, which has been a theme for HY versus higher-rated assets that we have been talking about in these letters. Improved quality, collateral security, and lower duration all reduce volatility relative to other fixed income assets. Year-to-date HY is still positive +0.04%, while 10-year treasury bonds are down -5.15%, the Bloomberg Agg is down -2.91%, IG corporates are down -2.79%, and agency mortgages are down -3.02%. BB yields ended the month at 7.16%, up 100bps. Single-B yields ended at 8.33%, up 104bps, while CCC yields were 16.75%, up 191bps. Spreads for BBs were 211bps, higher by 41bps, Single-B spreads were 333bps, up 45bps, while CCC spreads were 1,180, higher by 135bps.

Supply pressured spreads with net issuance of $36bn, the largest on record. Multiple large deals price at the end of the month including Paramount Skydance’s fourth largest HY deal ever at $12.3bn and Softbank’s $11.1bn issuance not far behind. Fund flows also added to the pressure with $4.7bn outflows in September. The Paramount syndication made waves as it closed on the last day of the month and the 10-year bond immediately traded down 5 points, then another few points the next day. The cause of this was because it was a very large deal, with the vast majority of market participants doing work on the name. When investors tell the syndicating banks how many bonds they would like, the market standard is to “pad” orders sometimes by multiples of what the investor really wants or can even hold, because investors get cut back or receive a fraction of the bonds than they indicate they want. The big move in rates came in the last few days of the month so there were investors who pulled orders at the last minute leaving the remaining investors to get “full fills” on inflated orders. Investors who received more bonds than they wanted quickly tried to sell them when they could, pressuring bond prices immediately. We did not participate in the Paramount bond offering.

When we look at HY’s yield widening during the month from the beginning up until the 23rd of the month, Yields had increased 60bps, of which over 80% was due to rates versus spreads, and the last 5 days of the month spread widening accounted for just shy of 80% of the remaining 47bps increase in yield.

Loans

Loans continued to be a calm spot in September, with a positive return of +0.26%. BB Loans were up +0.18%. Single-B loans were up +0.41%. CCCs continued to lag down -1.70%. Year-to-date CCCs are down -4.71%, while the broader index is up 3.42% and BBs and Single-Bs are up 3.86% and 3.92%, respectively. Loan spreads tell a different story than that of HY. Index-level spreads widened 5bps to 482bps. BB spreads were higher by 14bps while Single-B spreads tightened by 1bps, and CCC spreads were wider by 129bps. So far this feels more like bifurcation of the lower quality spectrum rather than broad stress. Loans benefited from flows, with +4.7bn of inflows, because as rates increased investors sought protection in floating-rate assets. CLO ETFs accounted for $3bn of that inflow. Yield to a 3-year takeout for loans increased to 9.62%, up 64bps in the month. Spreads were higher by 5bps, to 482bps. An increase in Fed Funds and rate expectations drove yields higher. Early September saw increased re-pricing activity while total net supply for loans was not that far behind HY at $32bn, the strongest issuance month in 3 years.

Returns as of September 30, 2026

BH Strategy Returns Month QTD 1 Year 3 Year 5 Year 10 Year 20 Year Since Inception
High Yield Composite Gross -2.26% -0.93% 3.39% 9.39% 5.12% 6.25% 6.64% 6.52%
High Yield Composite Net -2.29% -1.02% 2.93% 8.88% 4.63% 5.75% 6.13% 6.02%
Bank Loan Composite Gross -0.53% 0.85% 4.81% 8.18% 7.18% - - 6.40%
Bank Loan Composite Net -0.57% 0.74% 4.33% 7.66% 6.66% - - 5.88%
Asset Class Month QTD YTD Index
HY Return -2.49% -1.81% 0.04% ICE BAML HY Index
HY BB Return -2.45% -1.86% -0.05% ICE BAML BB HY Index
HY B Return -2.34% -1.30% 1.12% ICE BAML B HY Index
HY CCC Return -3.42% -3.57% -3.44% ICE BAML CCC HY Index
Leveraged Loan Return 0.26% 2.03% 3.42% S&P UBS Leveraged Loan Index
LL BB Return 0.18% 1.53% 3.86% S&P UBS Leveraged Loan BB Index
LL B Return 0.41% 2.43% 3.92% S&P UBS Leveraged Loan B Index
LL CCC Return -1.70% -1.72% -4.71% S&P UBS Leveraged Loan CCC Index
HYG -2.73% -2.00% -0.34% iShares iBoxx High Yield
BKLN -0.13% 1.95% 1.97% Invesco Senior Loan ETF
S&P 500 Return -0.35% 2.30% 12.75% S&P 500
Russell 2000 Return -5.25% -7.23% 13.71% Russell 2000 Index
10 Year Beg 4.75% 4.47% 4.17% 10 Year Treasury
10 Year End 5.29% 5.29% 5.29% 10 Year Treasury
10 Year Return -3.65% -5.17% -5.15% 10 Year Treasury
Beg Mo Beg QTD Beg Year End of Month
HY YTW 7.23% 7.15% 6.62% 8.30%
HY BB YTW 6.16% 6.07% 5.55% 7.16%
HY B YTW 7.29% 7.34% 6.78% 8.33%
HY CCC YTW 14.84% 13.95% 12.57% 16.75%
HY STW 279 bps 294 bps 296 bps 327 bps
HY BB STW 170 bps 186 bps 186 bps 211 bps
HY B STW 288 bps 315 bps 315 bps 333 bps
HY CCC STW 1045 bps 978 bps 892 bps 1180 bps
LL YT3Y 8.98% 8.93% 7.86% 9.62%
LL BB YT3Y 6.70% 6.59% 5.79% 7.41%
LL B YT3Y 8.54% 8.63% 7.42% 9.11%
LL CCC YT3Y 21.53% 21.04% 17.95% 23.48%
LL ST3Y 477 bps 500 bps 455 bps 482 bps
LL BB ST3Y 249 bps 266 bps 247 bps 263 bps
LL B ST3Y 433 bps 469 bps 410 bps 432 bps
LL CCC ST3Y 1726 bps 1708 bps 1471 bps 1855 bps
‍Source: Barrow Hanley. Returns represent an asset-weighted composite of all Bank Loan Fixed Income portfolios or High Yield Fixed Income portfolios. Index returns are shown before transaction costs, management fees, and other expenses. Performance is expressed in U.S. currency. Net-of-fee returns are calculated us-ing a model fee. The model fee is based on a $100 million portfolio using our standard fee schedule. Past performance is not indicative of future results. Inception Date for Bank Loans is June 1, 2018. Inception Date for High Yield is January 1, 2005.
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