Risk premiums as measured by Option Adjusted Spreads (OAS) for CCC-rated US bonds have fallen to 13 year lows of ~493bp. Bloomberg’s data shows that a fall below 500bp has been seen only twice in the last two decades – most recently in 2007 before the global financial crisis and before that in 1994 before the dotcom bubble. As Bloomberg notes, this may be sounding an alarm in the bond markets. Going by quarterly performance, HY has outperformed IG in Q1 this year after the sell-off in US Treasuries dragged prices of the duration-sensitive IG sector.
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