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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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