Another day, another rout in the credit market which no longer seems to follow the daily gyrations in stocks but has developed a mind of its own in the past month. And there appears top be just one thing on said mind: selling.
One week after some wondered if we have crossed the "obscene point" in the credit selloff, and it is now time to start waving bonds - both IG and High Yield - in, the answer appears to have been no, because as the chart below shows, Investment-grade bond spreads widened another 3 basis points to 168 basis points on Monday, the highest since June 2016. The index has widened every day since Dec. 14.
At the same time, the high-yield index rose to 530 bps on, the highest since Aug. 4, 2016, and spiked 16 bps higher from the prior day’s close.
And with spreads blowing out even as TSYs were stable, it will not come as a surprise that junk bond yields reached fresh highs on Monday amid turmoil in stock markets, with the YTW closing at 8.07% Monday vs 7.97% on Friday, the highest since April 2016 and now less than 2% away from the yield highs observed in early 2016 during the peak of the energy credit rout in late 2015/early 2016.
While there is still a way to go until we cross recent cycle highs, the concern is that unlike in 2016 when the junk bond plunge was mostly a function of energy credits, this time it is far more widespread and affects names from virtually every sector.