Credit spreads indicate a probability of default of corporate issuers. For euro-denominated corporate bonds with non-investment speculative ratings (high-yield), the credit margins reached a local maximum of 695 basis points, or 6.95 % on March 23. At this point, stress was the highest on global financial markets.
On that day, global equity markets also reached their local low, down by around 35 % from all-time highs in mid-February. From this point on, the key central banks, led by the US Fed, have announced a variety of massive asset purchase or quantitative easing (QE) programs, and the global financial markets have stabilized. Today, European high-yield credit margins are significantly lower at 483 basis points. Even so, they are still significantly higher than at the beginning of the year, when credit margins were around historic lows at just 200 basis points. It is therefore evident that stress is still present on the global financial markets and that the market prices of corporate bonds with non-investment speculative ratings (high-yield) are significantly lower compared to the beginning of the year, on average by 10%.
Investment Strategist at Conseq Investment Management, a.s.