While all recessions have unique characteristics, the current downturn has had a very unusual catalyst in the coronavirus pandemic. Markets have taken solace in the liquidity provided by central banks, and companies have been able to issue debt at record levels in 2020. Investment-grade bond spreads tightened 14 basis points (bps) to 136 bps on an option-adjusted basis during the third quarter, but that mostly took place in July. Economic news has been mixed, likely contributing to the range-bound nature of corporate bond spreads for the rest of the quarter.
Credit spreads narrowed slightly in 3Q
The Capital Group Long Duration Credit Composite rose in absolute terms during the quarter but trailed the benchmark Bloomberg Barclays U.S. Long Credit Index. A few utilities sector holdings exposed to California wildfire risk weighed on relative returns from issuer selection during the third quarter. This was mostly offset by strong issuer selection in the energy sector.
At current elevated valuations, investment-grade corporate bonds generally reflect much of the upside in potential economic activity but very little of the risks on the horizon, including uncertainties related to the path of the virus and the looming U.S. election.
This investment strategy and/or related material is designed for use solely by Qualified Purchasers, institutional investors and consultants.
Bloomberg® is a trademark of Bloomberg Finance L.P. (collectively with its affiliates, “Bloomberg”). Barclays® is a trademark of BarclaysBank Plc (collectively with its affiliates, “Barclays”), used under license. Neither Bloomberg nor Barclays approves or endorses this material, guarantees the accuracy or completeness of any information herein and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
Market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.
Fixed Income
United States
International
RELATED INSIGHTS
Get the Capital Ideas newsletter in your inbox every other week
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
Use of this website is intended for U.S. residents only. Use of this website and materials is also subject to approval by your home office.
American Funds Distributors, Inc., member FINRA.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.