21 May 2024

Volatility in US Investment Grade Corporate Bond Market Hits All-Time Low!

📉 Trend Alert: The 1-month volatility of the CDX North America Investment Grade index, a basket of 125 equally weighted credit default swaps on investment-grade issuers, has dropped to its lowest level since the index was launched in 2012. 📊 What’s Driving This Trend? Resilient Economy: The US economy is demonstrating strong resilience, which supports narrower credit spreads. Stable Equities: Low volatility in the US equity markets indicates investor confidence, further stabilizing the bond market. Strong Corporate Health: Robust fundamentals of US companies are contributing to lower credit risk perceptions. 📈 Interest Rates & Credit Spreads: Negative Correlation: There's a current negative correlation between US interest rates and credit spreads. This means that as interest rates rise, credit spreads tend to narrow, and vice versa. Positive Impact: This trend has led to US corporate bonds significantly outperforming US Treasuries, marking the biggest relative outperformance since the pandemic crisis in March 2020. ❓ Future Considerations: How long can we expect this low volatility and narrow spreads to continue? Watch the credit market closely for any signs of weakness. Source: Bloomberg


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