The U.S. high yield bond and leveraged loan markets staged impressive rallies during the first half of 2009, making a partial recovery following the worst annual performance for both markets in 2008, according to Fitch Ratings.

U.S. high yield bond issuance rose to $52.1 billion in second quarter 2009 (2Q'09), the highest level since 2Q'07. Leveraged loan issuance more than doubled, rising to $68.4 billion compared to $31.6 billion in 1Q'09. On a performance basis, the U.S. high yield bond market generated a total return of 23.19% in 2Q'09, representing the highest quarterly return in the history of the market (dating back to 1987).

'Fixed income investors are swarming back into the leveraged finance markets, undeterred by weak corporate earnings and rising default rates,' said Eric Tutterow, Managing Director, Fitch Ratings U.S. Leveraged Finance team. 'Their actions are predicated on a belief that the economy has bottomed and recovery is on the way.'

The recovery in the leveraged finance market was not uniform across all debt classes. Floating-rate notes (FRNs) reappeared in the high yield bond market in 2Q'09 for the first time since April 2008, while second-lien loan and leveraged buyout (LBO) loan issuance remains practically nonexistent.