Diverging paths

02.26.21

Chart of the Week – Diverging paths

The reflation trade is alive and well in U.S. markets. While there is plenty of evidence to be seen in equity markets, bond markets are adhering to the theme as well.

Worry over growth inspired inflation has impacted higher duration bonds the most. U.S. high-yield bonds have less than half the duration risk relative to their investment-grade counterparts. Also, an improving macroeconomic environment tends to lower credit risk, especially for lower rated borrowers. Since the beginning of the year, U.S. investment-grade spreads have improved only 7 basis points (bps), relative to high-yield spreads improving 41 bps. Senior loans, with their floating-rate characteristics, tend to perform better than high-yield bonds in a rising rate environment.

Year-to-Date Returns

Source: Bloomberg, Ivy Investments. Duration is an approximate measure of a bond’s price sensitivity to changes in interest rates. Dates shown are January 4, 2021 through February 22, 2021. This chart is being provided as a general source of information for education purposes only, and is not intended as a recommendation to purchase, sell or hold any specific security or to engage in any investment strategy.