Tuesday, December 09, 2008
Credit Markets: Quality Still Counts
We're seeing a nice contrast in performance between investment grade corporate bonds (LQD; top chart) and high yield corporates (HYG; bottom chart). Since October, investment grade corporate bonds have attracted buying interest, moving to two month highs. High yield corporate bonds, however, continue to languish at their bear market lows. The spreads between high yield and investment grade bonds offer a nice sentiment gauge regarding expectations of default vs. recovery. So far, the emphasis on quality in the bond market suggests that expectations of defaults have not abated.