High yield continues to outperform investment grade.
High yield securities are becoming historically rich compared to emerging market securities.
Heavy supply from investment grade issuers is hurting performance.
Monthly Fixed Income Update – June 2018
At the halfway point of 2018, there are a multitude of interesting stories to cover in the fixed income markets. Beginning with June’s performance, the headline remains the divergence in performance between investment grade (NYSEARCA:IG) and high yield (NYSE:HY) credit. From a total return standpoint, junk bonds (HY) were the best performing sector for the first six months while IG was only kept out of the fixed income cellar by the poor performance of emerging markets (NYSE:EM).
**Please note there was an error which has since been corrected in the May performance table. For reference May’s corrected table is shown below June’s.
May’s Corrected Performance:
The primary culprit for IG underperformance versus HY is heavy supply from merger and acquisition-related issuers in the healthcare, food & beverage and retail sectors so far this year. At the same time, HY supply has been on the decline.