December offered credit investors a taste of what a real cyclical downturn might look like in a post-GFC (global financial crisis) world. Unsurprisingly, most did not enjoy the flavor.
In concert with other risk assets, corporate credit saw considerable volatility and losses late in the year. What was troubling to many in the market, however, was more than the magnitude of the loss. To wit, the U.S. high-yield market was down 4.5% during the fourth quarter1 - bad, but not catastrophic. The more significant concern among many came from the utter dearth of liquidity