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%.