Investment grade credit finished the calendar year of 2016 with another quarter of positive excess return. The slow pace of new issue activity trailed expectations, helping provide support for credit spreads even as Treasury yields spiked higher and market volatility picked up with the surprising election outcome carrying meaningful market implications.» Download File (PDF | 660.91 K)
The Bloomberg Barclays Long Credit Index tightened 28 basis points from September to December, 58 basis points year-over-year, and 106 basis points off the February wides to finish the year at a 167 basis points spread. For the second consecutive quarter, long-dated Financials outperformed Industrials and Utilities, though the sector was still a laggard for the calendar year.» Download File (PDF | 817.63 K)
The high yield market ended a strong year on a positive note despite Donald Trump’s surprise presidential victory, rallying commodity prices and resurgent inflation expectations. After a volatile quarter, the yield-to-worst on the Bank of America Merrill Lynch U.S. High Yield Constrained Index ended the quarter at 6.17%, its lowest level since the third quarter of 2014 (6.14%).» Download File (PDF | 697.33 K)
Although new issuance declined during the fourth quarter, the primary market remained accommodating as companies continued to refinance their capital structures. High yield flows reversed during the fourth quarter as investors pulled $2 billion from the asset class. The high yield market saw $6.9 billion in inflows over the course of 2016, compared with $16.6 billion in outflows during 2015.» Download File (PDF | 697.04 K)
The U.S. election’s potential impact on both global interest rates and currency markets dominated asset prices during the fourth quarter of 2016. EMBI spreads, while volatile, finished the quarter close to the levels in which they began the quarter. Down-in-quality emerging market corporates outperformed. Local currency assets struggled during the quarter with the post election sell off in rates as well as policy uncertainty weighing on non dollar markets» Download File (PDF | 681.36 K)
The path of least resistance for credit markets in December was for tighter spreads, which cemented 2016 as the best year for investment grade corporates and high yield since 2012 and 2009, respectively. High grade and high yield spreads tightened 6 and 46 basis points respectively, paced by strong performance from the Energy-related sectors following the OPEC deal to cut production was struck at the end of November.
A strong fourth quarter cemented 2016 as the best year for investment grade corporates and high yield since 2012 and 2009, respectively. The primary catalyst to this strong performance was the Presidential election, where a surprise result was first met with overnight panic that quickly turned into relentless buying.» Download File (PDF | 617.37 K)
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