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.
(Free Content) HY Trade Idea: LOXAM
LOXAM (BB) is a large equipment rental group offering over 1,500 different types of equipment, with approx. 760 branches, largely in France (65%). Major equipment includes Earthmoving (31% of sales), Aerial Platforms (21%), Building (12%), Handling (11%) and Energy (10%). Competition is fragmented, LOXAM holds a 3.8% European market share (21% in France). Management owns [...]
On a wing and a prayer
The sense of crisis is back... Not since 2016 has the 10-year Bund yield dropped below 0%. It took a poor set of Eurozone PMI data on Friday - later added to by weak data from the US - to help tip that yield over the edge as it was confirmed that the all-important and crucial German manufacturing industry is in recession - as others across the Eurozone are too. It was all ve [...]
The Fed is your friend
Managing the decline in macro... The Fed delivered a welcome dovish turn-up for the books and has likely provided the markets enough of an injection of a prolonged level of liquidity assistance that it will carry lumbering global economy through 2019. The good old peak to trough in the level of the economic cycle (be it measured by rates, inflation, growth) has compressed, c [...]