iBoxx EUR Non-Financials Subordinated Index data provided by Markit Group Ltd
i) Non-Financial Corporate Hybrid Index Spreads
Corporate bond market weakness has severely impacted this high beta sector. It hasn’t helped that some commodity sector companies are issuers as well as the maligned VW. The bid for this product was extremely strong well into 2015, but we since been met with some material levels of weakness. It hasn’t helped that rating agencies have not been shy in changing their methodology for this class of asset – all too frequently. The back up in yields and therefore funding costs has made it less attractive for corporates to issue the product as a form of cheap equity in order to shore up their balance sheets.
We’ve had a few non-financial corporate issues during the first half of 2017. Still, the upbeat tone of the markets through April’s French elections saw a massive drop in yields and spreads rallied hard as investors piled in to add higher yielding corporate debt product.
The sector rediscovered its mojo post summer as investors sought higher yielding debt, but also on potentially less penal changes in ratings methodology due from S&P. The index fared relatively well of the higher beta classes in November’s weakness, just 5bp wider and is now 137bp tighter in the year to end November, with the index yield at 2.15% – just 12bp off the record low.