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Credit Insights

High Yield Outperforming Investment Grade Year to Date as Credit Spreads Widen and Rates Rise

Several factors have led to this divergence.

Corporate credit spreads widened across both the investment-grade and high-yield sectors last week, although thus far this year the typically more stable investment-grade sector has underperformed the high-yield sector. The average spread of the Morningstar Corporate Bond Index (our proxy for the investment-grade bond market) widened 4 basis points last week and has widened 13 basis points this year. In the high-yield market, the BofA Merrill Lynch High Yield Master Index widened 7 basis points last week but year to date remains 3 basis points tighter. Between the divergence in corporate credit spreads and the impact of rising interest rates, the high-yield index's total return has outperformed that of the investment-grade index. Through March 16, the Morningstar Corporate Bond Index has declined 2.64%, whereas the BofA Merrill Lynch High Yield Master Index has declined only 0.65%.

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