Equities may be the poster child for this year’s market recovery, but corporate bonds have been the runaway outperformer.
As the graphic below shows, corporate debt was less volatile and moer profitable over the past nearly three years of crisis and recovery — even “junk” bonds.
This year’s performance for corporate bonds has been stunning. In December last year, the spread between global large cap company debt and U.S. Treasuries was 155 basis points, according to Bank of America Merrill Lynch. It has now narrowed to around 52 basis points.
The performance of high-yield, or “junk” bonds, has been even better. From a spread of 2,193 basis points in December, the BoA-ML global high-yield index now registers 773.
And what now? Investors still like the asset class, but there is evidence that the degree of passion may be cooling.