Non-Financial Corporate Hybrid Spreads and Yields

iBoxx EUR Non-Financials Subordinated Index data provided by Markit Group Ltd

i) Non-Financial Corporate Hybrid Index Spreads

Corporate bond market weakness had severely impacted this high beta sector. It hadn’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 then hit a period of some material levels of weakness. Nor had it helped that rating agencies had not been shy in changing their methodology for this class of asset – and all too frequently.

The sector might have rediscovered its mojo post-summer 2017 as investors sought higher-yielding debt, but also on less penal changes in ratings methodology due from S&P.  With it, the record low spread on the index came in late January 2018 with the index at B+178bp, having started 2018 at B+207bp.

Since then we have widened pretty aggressively, with spreads on the index closing at B+405bp (+198bp in 2018), and the yield jumping to 3.85%, from 2.08%. More deals are going to be hard to come by in 2019.

ii) Non-Financial Corporate Hybrid Index Yields

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