Corporate Bond Markets Soften in Sympathy With Surging Volatility
After widening most of the week, credit spreads were unable to recoup much of their losses.
Volatility refused to subside last week as asset markets were whipped around by a barrage of headlines regarding the U.S.-China trade dispute. In the equity market, in four out of five days last week, the S&P 500 either fell or surged well over 1% per day, with the greatest swing occurring Wednesday, when stocks fell almost 3%. It was a similar story in the bond market as interest rates swung 5-10 basis points per day depending on investor sentiment as to whether the trade war was cooling off or heating up. Even the measurement of volatility was volatile. As measured by the CBOE's Volatility Index, the volatility of the S&P 500 traded between 17.8 and 23, depending on which way the market was headed at any one point. Corporate bond traders were whipsawed as they tried to keep up with the amount that credit spreads were either widening out or gapping in based on the swings across the equity markets and underlying interest rates.
Over the past 20 years, the movement in investment-grade credit spreads has had an 85% correlation with equity volatility as measured by the VIX; however, over the past six months, the correlation has dropped to only 40%. In an environment in which volatility stays elevated and the market reverts toward its historical correlation, the current gap between corporate credit spreads and volatility could condense.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.