After appearing to dissipate in the second half of February, volatility made a resurgence at the end of the month. On one hand, investors are frightened of incurring losses as valuations are stretched thin and many pundits are warning of large retracements. On the other hand, investors are also influenced by FOMO--fear of missing out--as the historically successful buy-the-dip mentality has been ingrained in their psyche over the years.
This past week, the corporate bond market had myriad issues to deal with, consisting of technical issues relating specifically to the corporate bond market as well as much broader macroeconomic issues, potential changes to monetary policy, and the implications of potential trade disputes caused by tariffs. On the technical side, new issue volume surged and weighed on corporate credit spreads as the market tried to digest the heightened supply in the face of a retrenchment in the equity markets and rise in volatility. The average spread of the Morningstar Corporate Bond Index (our proxy for the investment-grade bond market) widened 5 basis points to end the week at +105. In the high-yield market, the average spread of the BofA Merrill Lynch High Yield Master Index rose 7 basis points to +365. According to Bloomberg, over $35 billion of investment-grade bonds priced last week--the second-highest weekly amount thus far this year. Bloomberg noted that this volume weighed on the market and that some of the transactions traded wider in the secondary market.