Corporate Bond Credit Spreads Return to Multiyear Lows
After peaking in February 2016 when oil prices bottomed out, corporate credit spreads have been on a nearly uninterrupted tightening trend.
After peaking in February 2016 when oil prices bottomed out, corporate credit spreads have been on a nearly uninterrupted tightening trend. The average spread of the Morningstar Corporate Bond Index (our proxy for the investment-grade bond market) tightened 3 basis points to +101 last week. At this level, the investment-grade index is 46 basis points tighter than the median and 65 basis points tighter than the average spread since January 2000. As an indication of how tight corporate credit spreads have become compared with their historical averages, since the beginning of 2000, the average spread of the Morningstar Corporate Bond Index has registered below the current level only 20% of the time. In the high-yield market, the average credit spread of the BofA Merrill Lynch High Yield Master Index tightened 4 basis points to +352. Over the past few years, credit spreads were the tightest in mid-2014, when they reached +101 in the investment-grade market and +335 in the high-yield market. Before then, credit spreads have only ever been tighter in the runup to the 2008-09 credit crisis.