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Credit Insights

A Tale of Two Bond Markets

It was the best of times, it was the worst of times.

It was the best of times, it was the worst of times, it was the age of central bank intervention, it was the age of negative interest rates, it was the epoch of financial complacency, it was the epoch of reaching for yield, it was the season of heightened share buybacks, it was the season of plunging commodity prices, it was the spring of shareholder activism, it was the winter of declining credit ratings, we had surging stocks before us, we had Chapter 11 filings before us, we were all going to retire early, we were all going bankrupt. Our apologies to Charles Dickens, but there are currently two different tales being told in today's corporate bond market. The bond prices of any company related to either the energy or commodity markets have plummeted, whereas for the rest of the market, bond prices have held in relatively well.

Over the past seven years, in order to shore up asset prices and spur inflation in an attempt to ramp up economic growth, central banks across the world have consistently intervened in their bond markets. Through a combination of lowering interest rates to zero (or negative in some cases) and instituting quantitative easing programs, central banks have pumped an unprecedented amount of liquidity into the markets. Both short-term and long-term interest rates have fallen to levels rivaling their historically lowest yields.