Corporate Credit Spreads Hitting Widest Levels in Past Two Years
Heightened tensions between the U.S. and China aren't helping.
Credit spreads in the corporate bond market weakened significantly last week as the already high tension between China and the United States rose a notch after the U.S. requested that Canada arrest the CFO of Huawei Technologies for allegedly violating sanctions with Iran. The average spread of the Morningstar Corporate Bond Index (our proxy for the investment-grade market) widened 7 basis points to end the week at +149. In the high-yield market, the BofA Merrill Lynch High Yield Master Index widened 25 basis points to +450. The equity markets also took it on the chin as the S&P 500 dropped 3.82%, which was enough to push the index back into the red for the year. At their current levels, investment-grade and high-yield bonds are both at their widest levels since the beginning of December 2016. This year has not been kind to the corporate bond market, as year to date, the average spread of the investment-grade index has widened 53 basis points and the credit spread of the high-yield index has risen 87 basis points.