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.
MiFID II is HERE
ii) Investment Grade Bond Index: Corporate Spreads 2015-
Finally some good news on the spreads with an 11bp tightening in the IG iBoxx cash index in July. Having been as wide as B+138bp (also the wide point for 2018), the index has tightened to B+125bp (end of July).
So we have had a steady grind, helped by better equities and probably the more limited levels of primary market activity. The run rate thus far for 2018 sees IG primary supply €50bn lower than for the Jan-Jul period in 2017!
The ECB had been lifting ca.€4bn of IG non-financial corporate bonds per month but that rate of activity did slow in the final two weeks of July to a monthly rate closer to €2bn.
Financials continue to outperform in spread and total return terms. We would expect this trend to continue and should we get a more benign geopolitical scene, spreads can grind on through the rest of the third quarter.
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. Spreads are wider in that period but geopolitical and macro concerns have supplied a good bid for government bonds which has offset that spread weakness.
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.IG Spread Analytics HY-IG Spread differential