Long duration credit update: first quarter 2019 | Capital Group

Investment Insights

May 2019

Long duration credit update for the first quarter of 2019

Greg Garrett LDI Investment Director New York office 31 years of experience (as of 12/31/2018)

After a significant widening of spreads in the fourth quarter, credit markets rebounded along with equities and other risk assets during the first quarter. A key catalyst of positive sentiment was a more accommodative stance from the U.S. Federal Reserve. This drove U.S. Treasury yields lower across the yield curve and pushed the 10-year Treasury rate below the fed funds rate – a condition that has preceded each of the last three recessions by one to three years. Long-dated investment-grade credit spreads narrowed by 27 basis points (bps) to 173bps during the quarter. The spread tightening combined with lower Treasury yields cut the long corporate credit yield to 4.41% from 4.91%.

 

chart-LDI-2019q1-us-long-inv-grade-bonds-721x312

Option adjusted spread and yield to worst calculated for the Bloomberg Barclays Long U.S. Corporate Index as of March 31, 2019.
Sources: Barclays, Bloomberg Index Services Ltd., Thomson Reuters Datastream.

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