The corporate bond market pretty much followed equities in 2020. Spreads gapped out to solid recession levels when the coronavirus lockdowns hit in March. After a quick bounce back, IG and HY spreads traded in a range throughout the summer then tightened in several steps to close out the year near 100 bp for investment grade and 400 bp for high yield (Charts 1a and 1b).

Indeed, the latest rally was strong enough that both the investment grade and high yield markets handily outperformed their historical relationship with the VIX index of short-dated implied equity volatility.