Investment grade bonds data: Hover over the charts to see the values at a given date. iBoxx EUR Corporates Index data provided by Markit Group Ltd.
These charts are updated monthly.
i) Euro Investment Grade Bond Index: Corporate Spreads
The period from late 2007 through to Q1 2009 coincided with the greatest widening in credit spreads ever seen. The excess systemic leverage/structured product bid leading to very tight spreads markets in the preceding 2003-2007 period was spectacularly undone.
We recovered hard in 2009 once the central bank easing began with money looking for a home in cheap, high yielding corporate bonds. 2009 coincided with the greatest spread tightening era ever seen.
While corporate bond markets sold off in late 2011-2012, we have seen a good recovery since. The compression trade, between high and low beta corporate bonds all the way down to and including the HY market was a key feature in the 2012-2014 years.
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Back to Safety
Stuttering into a policy response We head into the final week of the month reeling from a weak set of economic data from the Eurozone, which came just a day after China posted better than expected GDP numbers for the first quarter. French and German PMIs for the manufacturing sector show that activity has slumped and is set to remain weak (in contraction). Services are doing [...]
Got to be happy with that
Euro-denominated IG credit spreads (iBoxx index) at B+127bp (-46bp this year already) might actually see B+110bp or lower before 2019 is out. All we need is fear (that it could all come crashing down), hope (that we might be seeing global growth underpinned by those Chinese stimulus measures) and a lot of luck (that event risk remains well off the radar). It looks like we w [...]
Inflows, demand, reduced primary, illiquidity…. squeeze
Credit bagging performance... It appears as if the Easter holidays are already with us and are acting as limiter on activity after a breakneck start to the year, against the expectations of most. The Dax is up by close on 15%, the S&P a good session's trading away from a fresh record high, just as euro-denominated IG credit sits on returns of almost 3.5% year to date - w [...]
2016 (or maybe 2017?) all over again
Credit market lapping it up... There are still a couple of weeks in which to get some business done either side of the long Easter weekend break. And chances are that credit Primary ought to be flying, equities will probably edge higher, fuelled by the potential for further eventual policy easing - while discounting a potentially poorer earnings season overall (bank results [...]
ii) Investment Grade Bond Index: Corporate Spreads 2015-
Investment grade spreads as measured by the iBoxx IG cash index widened by 76bp in 2018. There were hints of crisis for equities coming from slowing macro and a cacophony of geopolitical situations, and while credit managed to stay clear of a direct hit, the asset class got dragged into the weakness.
It was the poorest year for widening since 2016, but the worst since 2008 for total return performance as we returned -1.2%.
All sectors were hit, high beta clearly under performing, and the weakness was exacerbated late on as cheap new issues repriced whole sectors.
We’re set to weaken some more through 2019, but he extent of that weakness will depend on the evolving macro environment and also the ongoing geopolitical risks. We’ve set a target of 15bp of widening in the index (positive total returns though), hoping that policy response to the potential for recessionary forces to batter risk assets is quick and decisive.
iii) Investment Grade Bond Index: Corporate Yields
Yields from investment grade bonds have backed up from the 2017 lows but the overall firmness in the underlying has helped keep them at still relatively low levels. We have been as low as 0.88% on the index and as high as 1.80%, but we have been in a 1.30% index yield area for much of the period from May (dragged higher by spread weakness later, end Dec at 1.70%).
The chart shows how the corporate bond market has benefited from QE – the need for investors to buy safe, higher-yielding assets while the high levels of demand have promoted the disintermediation in funding for the corporate sector. Event risk largely around US politics (Trump/China/trade wars) and to a lesser extent Brexit have prevented underlying yields from popping materially higher.
With underlying yields set to remain anchored as macro weakens, the yield on the index is unlikely going to exceed 2% by much.IG Spread Analytics HY-IG Spread differential