HY-IG Spread Difference

This high yield minus investment grade spread difference chart is updated monthly

It is no coincidence that the ECB’s participation in the corporate bond market through its QE has had a profound impact on the differential in spreads between HY and IG markets. As the chart shows, we are at record tights between the two asset classes (161bp).

The continued need for yield amid low policy and market rates, the lack of IG issuance and confidence in the HY market as the global economy looks to pick up a head of steam are all contributing to the record low spread levels in the HY market.

With the QE effort likely to be scaled back, we think that the corporate programme might still see the ECB take down around the average weekly IG accumulations of €1.7bn, which will only serve to keep the high yield market better bid as well as investors remain impacted by the IG crowding out effect.