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Credit Insights

Corporate Bond Market Inured to Political Drama in Washington

The corporate bond market traded in an orderly fashion and was relatively quiet last week.

Whether investors have either disregarded or have just become so inured to all of the noise and headlines emanating out of Washington, the corporate bond market traded in an orderly fashion and was relatively quiet last week. There remained a bid for U.S. dollar-denominated corporate bonds; however, the sentiment across fixed-income traders weakened slightly, generally following the gyrations in the equity markets. The amount of new issues settled into a normal range for this time of year, although we expect the new issue market will be subdued over the next two weeks as companies begin to enter their quiet period before the quarterly earnings reports start in mid-October. On a relative basis, the investment grade market performed better to the downside than the high-yield market. For all of the news regarding impeachment investigations, on a week-over-week basis, the Morningstar Corporate Bond Index only widened 2 basis points to +119; whereas, in the high-yield market, the ICE BofAML High-Yield Master II Index widened 18 basis points to +399.

Typically, over the short term, the movement in the investment grade market is more closely correlated with movements in the U.S. Treasury bond market. Between the volatility in the stock market and the calls for impeachment, Treasuries prices rose as some investors decided to head for the sidelines. In the short end of the curve, the interest rate on the 2-year bond decreased 5 basis points to 1.63% and the 5-year fell 4 basis points to 1.56%. In the longer end of the curve, the yield on both the 10- and 30-year bonds declined by 4 basis points, to 1.68% and 2.12%, respectively. In the high yield market, over the short term, credit spreads are typically more correlated with movements in the equity markets and high yield spreads widened out in conjunction with the 1.01% decline in the S&P 500.