Summary
• When credit spreads gapped out during the post-Thanksgiving Omicron selloff, there were initial rumblings that frothy credit markets were verging on a correction.
• Spreads have largely returned to pre-Omicron levels. It is now apparent the selloff was primarily due to the spike in the VIX.
Investment Implications
• Elevated equity volatility suggests markets will be subject to ongoing temporary selloffs.
• Barring a major new development, we view these episodes as opportunities to add to positions.
• We favour high yield over investment grade. We recommend credit investors focus on high-yield ETFs HYG and JNK for their higher carry over investment grade and lower exposure to rate risk.
For those who worry about froth in the corporate bond market, the Big One seemed at hand after Thanksgiving. During the Omicron market selloff, credit spreads gapped out – investment grade widened some 10bp; high yield jumped 50bp.
Summary
• When credit spreads gapped out during the post-Thanksgiving Omicron selloff, there were initial rumblings that frothy credit markets were verging on a correction.
• Spreads have largely returned to pre-Omicron levels. It is now apparent the selloff was primarily due to the spike in the VIX.
Investment Implications
• Elevated equity volatility suggests markets will be subject to ongoing temporary selloffs.
• Barring a major new development, we view these episodes as opportunities to add to positions.
• We favour high yield over investment grade. We recommend credit investors focus on high-yield ETFs HYG and JNK for their higher carry over investment grade and lower exposure to rate risk.
For those who worry about froth in the corporate bond market, the Big One seemed at hand after Thanksgiving. During the Omicron market selloff, credit spreads gapped out – investment grade widened some 10bp; high yield jumped 50bp.
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