Market Recap

Returns for August were relatively benign for the amount of news. Yields influenced the larger stories of the month. Government yields across the developed markets have been rising steadily and consistently. The end of July saw Japan step in to support their currency by selling dollars to buy Yen, which prompted the Treasury to step in and help buy Yen through the Exchange Stabilization Fund. All told, the Treasury bought $5-$10bn with Japan buying ~$75bn. Not a large amount but the Treasury likely stepped in to help support the dollar and U.S. rates versus being altruistic. Trump later mentioned the U.S. received “financial benefit” out of it, and it was a “signal of friendship”. Most market participants believe the Treasuries involvement was to limit volatility in the U.S. rates and currency markets and reduce the perceived risk of Japan selling Treasuries. Japan stated they would fund future dollar selling through the Feds FIMA repo facility and Bessent has publicly called for expanding that facility. The FIMA facility allows central banks to repo treasuries instead of selling them outright. Later in the month Treasury announced they would double the size of their bond buying program which Bessent later characterized as a “Treasury Twist”, buying longer dated bonds funded with shorter dated issuance. Stories about the Treasury using the $935bn General Account stepping in to help with the buying programs ran supposedly on the statement of two senior Treasury officials. Biden-era TGA target levels were $550-$600bn so the current balances are well above target levels last stated.

Meanwhile at the Fed, Warsh gave his first major Jackson Hole speech warning that inflation is not meaningfully slowing and without seeing inflation moving towards their target of 2% that the Fed has “work to do”. Other fed officials also noted “some number” of rate hikes may be needed.

The 10-year ended the month at 4.75%, up 1bp with a late month push higher after Warsh’s hawkish comments at Jackson Hole. Gold rallied on debasement fears, jumping 15% during the month but finishing the month up over 8%. Bitcoin also posted one of its best weekly gains in over three years, appreciating more than 23% during the month. Equities posted a decent month with the S&P 500 up +2.72%. Credit markets were up with High Yield up +0.99% and Loans up +0.95%. Longer duration fixed income markets tried to keep up with Investment Grade up +0.40% and 10-year Treasuries +0.15%.

High Yield

High Yield was up +0.99% due largely to spread compression. Spreads tightened 24bps to 279bps during August. Yield-to-worst was 19bps tighter to 7.23%. Single-Bs continued their leadership within the ratings cohorts up +1.07% while CCCs brought up the rear up +0.62%. BBs were up alongside the index at +0.99%. Single-B spreads compressed the most tightening 33bps to 288 while BBs tightened 23bps to 170bps and CCC spreads widened 6bps to 1,045bps. Yields for our cohorts were 6.16% for BBs, 7.29% for single-Bs and CCCs at 14.84%. CCCs have consistently underperformed and we hear a handful of strategists using the rise in CCC spreads relative to other ratings as a reason to be cautious. We just wanted to highlight there has been some large moves within the CCC space, specifically a few of the larger issues have been upgraded out of CCC which causes spreads to widen due to mix versus fundamentals. We highlight last month the CCCs as a percentage of the index are down to 8.2%, well its 8.16% at the end of August, the lowest since 1997. Year-to-date the CCCs index has seen par value outstanding decline by over $21bn outstanding. This compares to the overall HY index par value outstanding increasing just shy of $20bn total year-to-date, with $43.6bn having been promoted to Investment Grade while $34.2bn was relegated down to HY. HY issuance was front end loaded pricing $26.7bn gross and $4.3bn net with nothing priced the last week in August.

Loans

Loans gained +0.95% during the month. Similar to HY, Single-Bs outperformed the other ratings cohorts up +1.03% while BBs gained +0.76% and CCCs were up +0.32%. 3-year Yields declined 11bps to 8.98% while spreads tightened 16bps to 477bps. Rate expectations increased but mainly further out on the curve, mid-2027 rate expectations increased 8bps while end of 2026 rate expectation increased 2bps. Issuance was down significantly from August 2025 levels gross issuance was $30.1bn down from $77bn in the prior August. Net issuance was $6.7bn compared to $15.8bn in August 2025. Loan investors have been more aggressive in pushing back on terms in new issuance during the month. A handful of deals had to sweeten terms with tighter docs and better economics for Loan buyers to finalize and syndicate. A couple of deals were pulled altogether likely to return after Labor Day with better covenants and economics as well.

CLOs

Moodys upgraded hundreds of U.S. and European CLO tranches after revising its ratings methodology and put roughly another thousand bonds on watch for possible upgrades. Between those two actions, this impacts about a quarter of the U.S. CLOs they rate and roughly half of the European tranches. The criteria change does two main things: it updates the default assumptions using broader and more recent data, and it adds a test to weigh the risk of loans within a deal rather than leaning on the risk limits in the indenture. The update follows a review Moodys announced two months prior. Fitch made similar changes which it has said could result in upgrades in as much as 15% of the deals it rates.

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 using 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.

Returns as of August 31, 2026

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 using 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.