Weekly Market Summary

Extra Credit^*

• Investment grade corporate bond dollar prices have declined substantially amid the recent rate sell-off. April posted one of the largest historical dollar price declines in long-end investment grade, falling nearly $5 month-over-month. Spread compensation per dollar (basis points or bps/$) has also declined. At the same time, the compensation in spread terms for moving into higher-dollar-price credits has fallen year-to-date by 0.2 and 0.3 bps/$ in single-As and BBBs, to respective lows of 0.1 and 0.2 bps/$.
• Investment-grade corporate bonds: AAA corporate bonds were down -1.69% vs. -2.50% for BBB corporates, as lower quality credit was one of the main drivers for the month’s performance. Duration was another driver for return in the month, as short-duration investment-grade corporate bonds were down -0.24%, 5-10-year investment-grade corporate bonds were down -2.34%, and long investment-grade corporate bonds were down -4.89%.
• High yield bond recovery rates have improved. Recoveries for both secured and unsecured bonds have risen from cycle lows, and unsecured recovery rates are their highest since August 2022. Improving recoveries, combined with defaults that should be fairly contained for the remainder of 2024, should give investors greater confidence to move from secured bonds into unsecured.
• High-yield bonds: The asset class saw risk underperform quite significantly, as BB high-yield returned -0.93% vs. -2.38% for CC and below high-yield corporates. The month also saw longer duration names underperform, as long-duration high yield underperformed the broad index for the month by -2.61%.
• For bank loans, staying on trend with the first quarter, investor demand continues to outpace net supply and, as a result, the technical imbalance that grew last year continues to widen. This demand is binary due to CLO issuance combined with cash inflows/outflows at retail investor loan funds. The par amount outstanding tracked by the Morningstar LSTA index grew by $11.3 billion in April, the highest monthly increase since April 2022, reversing $9.8 billion cumulative decline in the first quarter. As of April 30, the size of the index was $1.401 trillion, up a modest $1.4 billion from the end of 2023.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the month at 1.32% and 1.55%, respectively, compared to 1.86% and 1.67% from March. The long-term historical default rate for loans and high yield bonds was 3.0% and 3.4%, respectively.

Sources: Bloomberg and JP Morgan as of 5/6/24.