Corporate Bond Market Stuck in Narrow Trading Range While Equities Hit New Highs
Volatility brought about by Turkey's chaos has quickly dissipated.
Last week, we highlighted the divergence emerging among the performance of different asset classes. This divergence continued last week as the equity market marched toward all-time highs while the corporate bond market refused to follow, stubbornly remaining in a narrow trading range. Typically, when investor sentiment is risk on in the equity markets, the demand for U.S. Treasury bonds dwindles; however, the yields on long-term Treasuries declined as investors bid up long-term government bonds. Finally, after trending higher the past few months, the U.S. dollar pulled back slightly.
In the corporate bond market, the average spread of the Morningstar Corporate Bond Index (our proxy for the investment-grade market) was unchanged, ending the week at +116. In the high-yield market, the BofA Merrill Lynch High Yield Master Index tightened 3 basis points to end the week at +346. Among U.S. Treasuries, the 2-year rose 1 basis point to 2.62%, but the 5-year declined 3 basis points to 2.71%. In the longer end of the yield curve, the yield on the 10-year decreased 5 basis points to 2.82% and the 30-year fell 6 basis points to 2.96%.