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Lower Rates Carry Investment-Grade Above High-Yield Bonds

Declining interest rates propped up investment-grade bonds but couldn't offset the pummeling high yield received from dramatically widening credit spreads.

Dave Sekera: Investment-grade corporate bonds performed well last month in spite of widening credit spreads due to declining interest rates; however, high-yield bonds were pummeled as the dramatic widening in credit spreads in that asset class more than offset the benefit of lower rates.

In the investment-grade market, the Morningstar Corporate Bond Index rose a little more than 0.5% and, year to date, is now only down 9 basis points. The average spread of our index widened 10 basis points to 188 over Treasuries in September, but the decline in interest rates more than offset the credit spread widening. Thus far in October, credit spreads have begun to rebound. As of Oct. 7, our index stands at a spread of 178.