Chart of the week

Credit spreads reach a decade-plus low

See how spreads on corporate bonds have fared over the last 20 years, and why that might point to a prolonged search for income.

September 21, 2018 | 1 minute read
High yield and investment grade bond spreads
  • High yield bond prices rose to a near two-month high this week, sending spreads on high yield bonds down to 334 bps, or approximately 228 bps below their long-term average.1 Spreads refer to a bond’s yield above that of risk-free U.S. Treasuries.
  • Throughout much of the current economic expansion, investors have enjoyed an environment of healthy economic growth, solid corporate profits and a supportive Federal Reserve.
  • Against this backdrop, spreads on high yield bonds currently reside at their lowest level in more than a decade.1 As the chart shows, however, periods of tight credit spreads are not uncommon. Spreads on both high yield and investment grade bonds have spent long periods of time below their long-term averages over the past 20 years, most notably between approximately December 2003 and December 2007.1
  • Both corporate fundamentals and the broader U.S. economy remain strong and are supportive of an environment in which corporate credit yields remain at or near long-term lows.
  • Despite the fact that the Fed has raised rates seven times since December 2015, finding high levels of income among traditional fixed-income asset classes continues to be challenging in today’s market.2

  • Bloomberg, as of September 19, 2018. High yield bonds represented by the ICE BofAML U.S. High Yield Master II Index. Investment grade bonds represented by the ICE BofAML U.S. Corporate Master Index. Spreads refer to an index’s yield above that of the 10-year U.S. Treasury note.

  • Federal Reserve,

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Search our site