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.
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.
The push nevertheless might just come from the ECB as the central bank embarks on a renewed QE programme and eventually force investors back into the high yield market. The difference in spread between the two markets started 2019 at 350bp and currently stands at 292bp (October 2019), with some further compression potentially seeing it head for 250bp.
Time to count one’s chickens
Christmas might have come early... It wasn't the easiest session to figure out and trade through - until the US opened anyway. The violent scenes in Hong Kong previously, developments in the UK election, needing to think about the German Q3 GDP print due later this week and some apprehension (again) around the US/China/Europe trade tariff situation all saw to that. It wou [...]
Buy the dip opportunity
Keep believing, for now... The sell-off in the underlying has presented credit market investors with a near-term buying opportunity. It will keep spreads supported into year-end, although we are likely going to see an impact on total returns in low beta sectors of the credit market. No sweat. Given where the numbers are in credit so far this year, there is enough of a buffer [...]
Record supply meets the demand... There are still six weeks of business left in the market this year, but already IG non-financial corporate bond issuance has set a fresh record. Deals from Apple and Bayer took us zipping past the €285bn record from 2009. And a trio of transactions in a busy high yield primary market made for 2019 being the second-best year for deals in th [...]