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Beware the (mini) wides of March

Key points

  • Cross-asset returns are exhibiting a typical bull market pecking order, with equities leading credit, and credit leading government bonds
  • Notwithstanding being in second place, some credit markets e.g. US dollar HY, are continuing their record-breaking period
  • But the extent of the rally merits caution - or at least a rotation from the segments of the market that have outperformed to those that have underperformed

Credit returns: Going from strength to strength

The positive tone in global markets has continued unabated and cross-asset returns reflect this, displaying a pecking order typical of a bull market. Equities are outperforming High Yield (HY) credit, HY is outperforming Investment Grade (IG) credit and IG is beating government bonds. While credit may be behind equities in performance terms, some of its markets have continued on a record-breaking path. For instance, US dollar HY has enjoyed its second-best year-to-date period in 25 years (Exhibit 2), driven by a spread tightening of more than 20% in relative terms (Exhibit 4). In addition, sterling IG has posted its second-best year-to-date performance in some 23 years, thanks to its long duration - and despite lagging in the spread rally. (GBP IG ‘only’ 12.5% tighter year to date).



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