In looking back at 2Q investment grade sector performance, corporate bonds were the laggard. The BofA/Merrill Lynch Corporate Index of bonds maturing in 1-10 years fell 0.86% in the quarter, versus a 0.47% decline for Treasury bonds of similar maturities. The decline was driven by a widening of credit spreads, or the additional yield compensation investors demand to lend money to a corporation versus the U.S. Government. The drama in Greece, along with turbulence in the Chinese stock market, contributed to a “risk-off” environment, where investors sought the safety of risk-free assets over “risky” sectors such as corporates.
Credit Spreads on 1-10yr Inv. Grade Bonds
As shown in the chart, the average yield pick-up to buy a corporate bond versus a Treasury is nearly 1%, up from 0.72% in late February. This has made corporates, particularly those maturing in 3-5 years, very attractive and candidates for addition to our client portfolios.
We will be discussing this, and other trends we are seeing in the bond markets on our quarterly webcast this Wednesday at 1:00 PST. Please contact our Client Service Team at firstname.lastname@example.org for details.