Corporate bonds valuation - spreads vs history
EU Investment grade spreads
Insights
Understanding the current market value of corporate bonds requires looking at both their spreas and their all-in yields. Spreads measure their credit risk within a known interval, while all-in yields (spread+ govt bond yield) reflect their total income potential. Benchmarking both against historical percentiles allows investors to identify what is cheap or expensive vs past experience.
CURRENT READINGS
At 3.73%, EU Investment Grade all-in yields are currently at fair value.
MARKET IMPLICATIONS
EU IG all-in yields are currently compensating investors fairly- the asset class remains compelling for the long term from a valuation perspective
US Investment grade spreads
Insights
Understanding the current market value of corporate bonds requires looking at both their spreas and their all-in yields. Spreads measure their credit risk within a known interval, while all-in yields (spread+ govt bond yield) reflect their total income potential. Benchmarking both against historical percentiles allows investors to identify what is cheap or expensive vs past experience.
CURRENT READINGS
At 79 bps, US Investment Grade credit spreads are currently expensive.
MARKET IMPLICATIONS
For pure spread players- in general terms, expensive spreads justify further compression only with a positive view on upcoming growth and investor sentiment. When levels move to fair value, cheaper, cheap or very cheap, it has been tipically wiser to buy | add | accumulate.