2015 Corporate Bond Wrap-Up and First-Quarter 2016 Outlook
Credit markets: Volatility and spreads to remain elevated.
Corporate bonds performed poorly in 2015 as both investment-grade and high-yield bond indexes posted losses. Other fixed-income classes such as U.S. Treasuries and sovereign debt performed slightly better and generated positive returns; however, between the slight rise in interest rates and already low yields across the fixed-income universe, returns in those asset classes were subdued. The total return for 2015 of the Morningstar Corporate Bond Index (our proxy for the investment-grade bond market) was a loss of 0.46%; in the high-yield market, the Bank of America Merrill Lynch High Yield Index declined 4.64%. Losses were driven by a combination of rising underlying interest rates and widening credit spreads. In the investment-grade market, the average credit spread of our index widened 28 basis points to end the year at +168 basis points over Treasuries. The average credit spread in the high-yield index widened 191 basis points and ended the year at a spread of +695 basis points over Treasuries.