U.S. credit markets saw some respite after the Federal Reserve hiked interest rates last week, but the relief is expected to be short-lived as uncertainty around the U.S. central bank's ability to engineer a soft landing for the economy continues to weigh on risk assets.
Corporate bonds have had a rough start to the year as worries that tighter monetary policies could dent companies' profits and raise borrowing costs made investors more cautious.
Those yields dropped by 25 basis points on March 16, when the Fed hiked rates for the first time in three years and set out an aggressive path for hikes for the remainder of the year. Yields have dropped further since, and stood at 367 basis points on Thursday., which tracks dollar-denominated investment grade-rated corporate debt, dropped last week, from 152 basis points - which was its highest since July 2020 - to 146 basis points. It fell further to 132 basis points this week.
Spreads refer to the interest rate premium investors demand to hold corporate debt over safer U.S. Treasury bonds. They narrowed last year as government debt yields dropped, driving money into securities with lower credit ratings than Treasuries. "We believe the rally was more of a relief rally and will end up being short-lived given the same risks remain in place," said Wagandt.- an exchange-traded fund which tracks the U.S. junk-bond market – jumped 1.4% on March 16 to trade at $81.7 a share, but it has lost momentum this week.has also lost some steam, dropping 1.3% from last week to trade at $120.22 a share on Thursday.
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