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Blame Thanos: Speculative-Grade Corporate Bond Yields Fall Below Comparable Loan Yields

Apr 25, 2019

We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.
We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.

 

  • It's like something Dr. Strange would create, the situation on speculative-grade corporate bonds: the average yields on speculative-grade corporate bonds has fallen below that of loans of a comparable rate
  • The Rush to Risk we have seen since December has been huge, with strong risk-appetite being fed by an array of asset classes
  • As if Thor slammed his hammer on the VIX, it has collapsed from 36 on Christmas Eve to around 13 now, and with it yields on speculative-grade corporate bonds  
  • As flows into speculative-grade corporate bonds surged along with other risk assets, the average yields went from around 8% down to 6.51% (the Bloomberg Barclay's high yield index)
  • At the same time, the average yield on comparable loans fells from 7.23% to 6.53% (S&P/LSTA Leveraged Loan Index)
  • The inversion has been happening since March 26th and is the first extended stretch since 2007

Fed Funds Target Rate - 1 Year

fed funds

  • Part of this phenomenon can be attributed to the change in the stance of the Fed: its change to its present dovish stance happened quicker than the market expected
  • Rates all around have dropped now that hikes from the Fed are no longer in the cards for the foreseeable future
  • If whispers of cuts become reality - far from certain at this point - we could see even lower rates
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Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS