This high yield minus investment grade spread difference chart is updated monthly
The ECB’s participation in the corporate bond market through its QE had a profound impact on the differential in spreads between HY and IG markets.
As the chart shows, we saw a huge compression in spreads to record tights between the two asset classes (159bp). In 2018, the underperformance in the high yield market versus the investment grade one left us with a difference rising to 350bp at year-end. The decompression from the tights has been severe but we think has a little more to go in 2019 (less than 50bp though).
There will be a continued need from investors for yield amid low policy and market rates. But weakness in the economy will leave investors reluctant to support high yield corporate risk as they might have done previously.
So there’s a little more to think about. And investment in the asset class will be more measured, targeted and conservative.
When the chips are down
Collateral damage a sign of things to come... The collateral damage of the Trump order to blank Huawei on security grounds came through good and proper in the markets on Monday. What should have been - and initially looked like being - a small up or down session across the markets as they reacted to and absorb the weekend's news flow (Aussie elections, Japanese GDP, Google/H [...]
It isn’t getting any easier
Funnily enough.... The markets threatened a rout and all the ingredients were there for a steeper sell-off in last week's final session. But we're showing some resilience. Actually, corporate bond market investors find themselves in a good situation at the moment, and we think the conditions for that being the case are going to persist through the rest of 2019. As long as we [...]
Closing “Short TCGLN” Recommendation
Recommendation On 21 March 2019, we initiated our short recommendation: ‘TCGLN 3.875 currently trading at 67.5 have scope to fall further to 45 cash price…’ On 4 May 2019, when bonds fell to 55 cash price, we said: ‘…. we believe that the bonds have further to fall and maintain the short.’ Our rationale was that there was much uncertainty regard [...]